For last four posts I have gone through forecasts of Tomi Ahonen from year 2010 to year 2013. Today we have advanced to Tomi’s forecast for year 2014 and I would like to start by repeating that the measurement stick used by Tomi is unit sales and unit sale market shares – only. It is like saying that selling 200 Yugos is better sales than selling 100 Rolls-Royces. And not only better but twice as good! It is insane if unit sales is used as only metric to measure something but since it is the one Tomi uses we have to judge his forecast by that metric.

Samsung has effectively won the decade, and is guaranteed to have well above average profits in a very profitable industry. The real long-term rival to Samsung is not Apple, it is the Chinese vendors. One from the pack will finally get a genuine hit product and propel it to solid second place, in the next few years. That Chinese manufacturer will fight on price and in most consumer segments where Samsung is (and where Apple is not).

[1]

I agree this forecast will be a HIT for year 2014, not miss. What comes to unit sales and market share there is no direct challenger for Samsung and we should not expect to see one this year.
Also: since Tomi chooses to use unit sales as a metric, it definitely will not be Apple but one or more Chinese makers that start eating market share from Samsung. Samsung makes phone components for itself and for others and it has always given Samsung a position if advantage. Chinese makers are one of the few that can fight Samsung in price and start eating Samsung from bottom up. And they will as that is their easiest way to challenge the giant. There already are Chinese phones that offer equal quality and user experience as Samsung mid-range phones but with less price. This year we will se phoes challenging the high-end.

2014 will not be easy year for Samsung that already threw a profit warning but they will be “largest player” for sure. I would not be surprised if market share of Samsung will decline when Chinese vendors start selling outside China in significant amounts as consumers are finally familiar with the brand and dare to buy one.
Candidates for “familiar brand” category are Lenovo, Huawei and ZTE that all are already known brands outside China. Xiaomi and Coolpad need a year more to make themselves known enough.

Apple will do the iThing. They take the cream off the top, offering less than supreme devices, with some very Apple-ish ooh-aah single feature every few years, but lagging in most tech specs from the leaders. But providing uber-desirable sexy iconic iGadgets that every iGeek has to iHave. And in the process Apple gets to collect the biggest share of iProfits. As long as Apple investors are not under any illusions that Apple would one day “rule the world” of smartphones, and its role will be in the 10%-15% market share mid term, maybe more like 6%-8% in the long term, but taking the biggest profits, that is fine.

What’s with this downplay of Apple? Apple will naturally lose market share this year. The market grows in low end and reaches new low price points, sub $50 smartphones. Those phones sell for fraction of a margin of one single iPhone. Why would Apple start chasing those customers? (Trick question – they won’t.)
Apple grows market share in the high end and that is only category in which Apple sells. They are not chasing to grow towards the full spectrum. The fact that market grows from its low end is insignificant as long as Apple is incresing its unit sales, profits and market share in the category it competes in. Apple does all three.

And where did this “iGeeks” buying iPhones come from? In year 2012 iPhone contributed as 20% of all smartphones sold during that full year. Are 20% of the smartphone-buying population of this planet now iGeeks? Tomi’s statement here sounds like it was deep-frozen in year 2007 and now taken fresh into use.

Apple has increased its unit sales continuously. Apple will increase unit sales this year for sure. They just started selling on NTT DoCoMo and China Mobile, two large carriers that have not carried iPhone before. After those there is Indian market that has still potential in its high-end. But since – as said – market itself will grow even more from low end, Apple will lose market share. When Apple was at 15% and analysts said Apple is winning, Tomi said no. When Apple was at 20% and analysts said Apple is winning, Tomi said no. For year 2013 Apple will be down to 18% or alike and Tomi will say Apple has lost. I say Apple has been winning for years. Let’s assume Apple will have market share of 18% for full year 2013. (I’m saying “assume” as we don’t have exact results in yet.)

Trying to estimate from Asymco’s graph [2] we see that last year (2013) Apple will have gathered over 60% of the profits of handset industry with their 18% market share. That is very nice 18% to have. That is winning.

Apple has #1 ecosystem, although it has never fitted to Tomi’s world.
Tomi measures installed base of devices or users with access to App Store. Very nice metrics but very secondary. Apple has #1 ecosystem – i.e. gets apps first on markets where iOS is significant, even if iOS does not have largest market share. This happens since iOS as platform gets updated fast (iPhone users are more probable to update their devices), has less fragmentation (in form of screen sizes, CPU power, memory, etc.) and especially since iPhone users will far more likely pay for their apps. Apple has customers that use more money on music, videos and other content than Android users. iPhone users also pay obscene amount of money to carriers in form of data plan and post-paid phone price. They are very nice customers to have. Apple has this ecosystem for themselves and doesn’t share it with others. That is also winning.

Tomi seems to think that leader is measured by tech specs and therefore iPhone is not the leader. However any player in this industry would love to switch places with Apple and start selling these “lagging in most tech specs from the leaders” phones to those 150 million people that Tomi calls iGeeks.
Any player.
Even Samsung.
And that my dear readers – is very much winning.

So yes, I don’t understand this downplay of Apple. But Apple will do “the iThing” for sure. This forecast is so blinding obvious it will definitely be “hit”.

A player who is not in the race for the third ranking among smartphone manufactuers is Microsoft, with its Nokia acquisition.

Nokia went from twice as big as its nearest rival to now ranked barely 9th largest smartphone maker by the end of 2013 (and the smartphone unit is now massively unprofitable).

Can this improve under Microsoft? In the long run, maybe. In the short run absolutely not possible. Microsoft has been tossing Billions of dollars into propping up the undesirable Windows Phone system and much of that money has gone to help the Nokia Lumia sales either through marketing support paid to Nokia or as further marketing support paid to carriers/operators.

Microsoft will need to continue subsidising this undesirable tiny “ecosystem” as during 2014 Microsoft takes over the Nokia handset business and tries to figure out how to fix it. A big sign of will Microsoft do this intelligently or dumbly, will be how quickly Stephen Elop is removed from running the handset business of Microsoft. If Bill Gates (and Steve Ballmer) knew what they were doing with the Nokia acquisition then soon after the deal is completed in April, or during the spring they will reassign Elop to do something less damaging than running Microsoft’s handset business.

But during 2014 no matter what miracles Microsoft were able to achieve with its new Lumia (Nokia) unit, much of 2014 will be just adjustments and corrections and this is not a year of Microsoft/Nokia comeback. Microsoft-Nokia will be fighting just to remain relevant and in the Top 10 throughout this year. If you want to see the glass as half-full, then maybe in year 2015 we can hope for a comeback. If you want to see the glass as half-empty, we are now counting time till Microsoft shuts the lights out from the futile purchase of the Nokia handset assets. Although with Microsoft’s deep pockets. that will take years still.

Well I say Elop won’t be removed from head of mobile unit position as Microsoft does not have any better qualified person there. If he is moved, it will likely be promotion, as odd as it sounds.

But for rest, Tomi is right that Windows Phone will likely hang around in 6% to 8% market share. And Microsoft will pour money into it. Remember what was just said: Apple has #1 ecosystem if we consider where developers do their apps first. Google has #2. Microsoft has #3, as far as it may be. Apple has its pack of profitable customers, superior usability and desirable products. Google has volume and free OS that by app count and HW support is obvious choice for any manufacturer.

Microsoft and their ecosystem? One asset Microsoft has is cash. As they face a duopoly where other has locked in the best customers and other has handed free, leading-by-a-mile OS to manufacturers. Microsoft can’t compete in either terms. When there is a free OS as an option, they need to offer much more appealing ecosystem… …or cash. Even if Microsoft OS would be superior to Android, they lack the app count and installed base of Android. If Microsoft wants to get their phones to be a desirable choice for consumers, they need to pay for the marketing. If they want manufacturers to join in, they need to pay to compensate the licensing fee. If they want apps they better pay a developer incentive to make the app. You get the idea.

Very common developer stand has been that when WP gets above the 10% market share they are interested in it. Before that Microsoft needs to buy their way in and they have cash to do it. It may be a bit unsporting but this is how you play the game if you are where Microsoft is at. And for full year 2013 they have been playing the game well and grown faster than industry, moving towards the 10% goalpost. Please note that I say they have been playing “well”, not “remarkably”. Anyone still in the race has played well (think of poor Blackberry as someone no longer in the race). Microsoft grows toward their target. It is good progress, they’re not just not winning like Apple or Samsung.

Just to bug Tomi Microsoft will hang in the race as third ecosystem (although agreeable smaller one) for full year 2014. And Tomi will tell us along the year how Microsoft is ready to throw in the towel any day now. Like he told us since summer 2012 that Nokia will be sold “any day now”.
And Microsoft will not throw in the towel any more than Nokia was sold.

Blackberry already fell out of the Top 10 and are in such a bad shape they won’t be doing major returns any time soon. We already have seen Chinese Xiaomi pass Blackberry taking 11th ranking during Q4 of 2013 (they may even pass HTC and enter the Top 10 by the time the final Q4 numbers are in around early February)

Supported. RIM needs to find a new way to exist and they are more likely to be out of top ten than back in when we measure by unit sales. Also, they are making severe losses which indicates rough times on other metrics too.

We did see the “son of Nokia” ie Jolla launch on the evolution of Nokia’s next generation operating system MeeGo, called Sailfish (which is also Linux based and can run Android apps natively… cool). Jolla in December outsold the iPhone on the one carrier/operator that offered it in Finland DNA. From small things big successes can grow. Wishing Jolla and Sailfish all the very best.

Wishing them all the best too!
It would have been disastrous if they could not have been the most best selling phone in the month they started selling to all eager fans (exclusively on that operator). So it is good sign Jolla sold so well. Kind of sad that it has to end in January and it is even more sad that Sailfish OS won’t see even 1% market share for full year 2014, but I really, REALLY hope Jolla has big enough target group to keep sales at profitable level for every quarter of the year.

On the software side the biggest potential disruptor is Tizen. We should see the first Tizen smartphones from Samsung this Spring and likely sold among first markets in Japan on NTT DoCoMo’s network. My guess is that Samsung wants to create a big spash with its first Tizen device so they are putting extra effort to make it noteworthy. If a couple of other hardware vendors also deliver on expected Tizen handsets, it could be a fascinating world. Samsung also intends to use Tizen on its TVs and Tizen has many car makers and other tech providers lined up in that ecosystem

WHOA! STOP THE PRESS! After all these years this is first when Tomi does NOT talk about Samsung “shifting” away from Android? He is learning! But let’s talk a bit about Tizen.

I have been mocking Tomi for not seeing Tizen delays in my previous reviews of his forecasts. I also mocked him for expecting Samsung to shift their smartphones from Android to Bada. I understand that everyone asks why do I blame HIM if it is Samsung that delays Tizen. I don’t. I blame him for still being so blind about the OSes of mobile. In 2010 when Samsung was supposed to go Bada, they went for Android. Tomi would have seen this coming if he would have even a small bit of competence. In December 2009 we at Nokia were watching public sales figures of Europe. My colleague put it well: “Samsung is eating us alive”. SW developers were rushing to Android (yes, the same December 2009 when Tomi said Android won’t grow to even 1% of global handset sales during next 12 months) and there was no way to talk them to Symbian. It was obvious that two were growing fast. One was Samsung. Other was Android. Samsung had a chance to take a dominating grasp of the second most desirable ecosystem (not to mention nobody could take iOS from Apple) and Samsung would have been stupid not to take it.

In 2011 Samsung was tightening their hold on Android dominance. We are talking about Android that in 2010 became leading OS by market share. Second ecosystem by all meaningful metrics. Why would Samsung leave it for free to other players and go Bada? Tomi should have seen that coming but no.

So come Tizen and years 2012 and 2013. Sure, delays of Tizen were unpredictable but not unsurprising. Businesses – mobile or other – have one primary goal and that is to make profits. No profits, no business, no future. Bankruptcy. Ethical actions, environmental values etc. only exist to keep the company image clean. Bad image will cause negative effect on revenues and profits. Charity is an investment, not business. Business is to make money, not spend it. That’s how this game is played.

Samsung had secured position on Android. If they loosen their touch, 10 other manufacturers come and grasp all they can like a pack of vultures. Since money flows in from Android phones, Samsung was not going to let that happen. Android was, is and will be number 1 priority for Samsung and Tizen is a number greater than 2. Tizen is nice leverage towards Google, but Samsung cannot put too much money on Tizen without eating their own piece of Android pie. And they have a big piece.

Tomi tries to say Tizen is good for Samsung as they will control the entire ecosystem. Ecosystem of what? Tizen uses HERE maps from Nokia (quite ironically). Samsung does not control Tizen maps.
Or how about apps that are supposed to bring in the revenue? Samsung could go for Tixen and have a full control of Tizen app store… …with 0 apps.
Of course Samsung can go for Android compatibility, they already have Samsung app store for Android apps. However, end-users may notice the lack of titles like Hill Climb racing. Point is that if you are not using Android, you can not access Google Play Store and the million apps it has. When you see “try our mobile app for Android” – ad somewhere and pick up the QR code, you’ll get to see that your phone – even though capable of running the app – can not actually get the app. Nasty surprise.

If you wonder my negativity, ask IBM how Windows compatibility road worked for OS/2: when Windows 95 was launched, IBM knew they will spend obscene amount of money to bring compatibility up to date or they will call it a day and go home. They chose latter one.

Any Android-compatible player is pot committed to keeping their OS compatible. But Google is not committed to support that compatibility at all and they are known to introduce obstacles on that path. The moment Google introduces next non-open-source quantum leap to “real” Android the other players have to call their hand. I don’t know what that leap will be. It could be something coming with 64-bit support that needs rewrite to make APIs compatible. It could be new complex APIs for face and gesture recognition, being too cumbersome to duplicate. It could be some very beneficial APIs that link directly to Google services that only real Android phones have. Something will come. Google is as fierce competitor as Microsoft and as equally doing charity. Google has no regrets swiping Android app compatibility free-riders off the face of the planet by accident. They don’t skip Android updates because someone might get hurt. If money comes in from the update, update happens.

In sum, Tizen is too fragile to be the sole base of Samsung strategy and Android is too valuable that Samsung would play second fiddle with it. Tomi does not agree but the duopoly is iOS/Android (or call it Apple/Samsung) and he has to live with it for next few years.
NTT DoCoMo seems to want Tizen. They already told first phones will be out in March. Samsung definitely has no objection if DoCoMo is supporting their Tizen initiative. And DoCoMo aims to have their own restricted offering of services through Tizen. It fitse well to operator business model but everything so far sounds like a good effort to alienate customers. Strongest red flag there is that NTT DoCoMo hang on with Symbian too long, almost as long as Nokia. Their track record is not to lead in adopting winning ecosystems.

One operator does not make a success so NTT DoCoMo or not we won’t see Tizen performance until at end of year. From what I said a moment ago, Tizen the smartphone OS would work well for users that are effectively feature phone users. That is a big market Samsung could address but it’s not from the high end as Tomi has been continuously promoting. For the high end approach I say for full year Tizen will register in 1% category.

And for sarcasm side: sure Samsung delayed Tizen intentionally since “they are putting extra effort to make it noteworthy”. Tizen is the first OS ever that is intentionally delayed, not because it needs rework for being behind competition or having some other difficulties to finalize it in time. (But hey, someone has to be the first to spend cash on R&D just for fun of it, right?)

Tizen is where we disagree most with Tomi. Too bad it takes a full year to see which one of us was right.

Its likely that Apple breaks the iPhone release cycle from 12 months into 6 months, releasing a new flagship in the Spring and new cheaper models in the Autumn, likely starting this year

Apple has not listened to Tomi on this subject before so I say this forecast will fail.

and they will probably spread the price difference between flagship model (current 5C) and discount models (5S).

This will definitely fail. Not happening in 2014 or 2015. I said it before and I say it again (copy-pasting myself here):

Tomi demands Apple to create a phone that would be specced so much lower than the “true” iPhone that those two would effectively be incompatible with each other. Apple can’t have that. They can sell the last year model as cheaper option as it is 100% compatible with the specs of… …last year model. The new iPhone 5C? Is iPhone 5 put into a plastic casing, not the half-price “my first iPhone” Tomi asks for. (And in my previous post I tried to point it out that iPhone 4S is actually half-priced iPhone but it is not what Tomi asks for.)

So how about when Apple launches iPhone 6? I guess they will discontinue iPhone 5S and do “iPhone 6C” that is practically iPhone 5S in new wrapping. iPhone 5C will live as cheapest – call it half-price – option. iPhone 4S will naturally be discontinued too. Or then they’ll do only iPhone 6 and leave iPhone 5S and 5C alive while killing iPhone 4S.
I would be surprised if there will be iPhone 6C and 6S sold at same time as 5S and 5C but I’ve been surprised in the past so that is of course also possible. Even apple changes over time. But trust me that the relative prices are not going to change and 6C would be significantly more expensive than half of 6S.

There was my take on Tomi’s forecast for year 2014. I assume he will revise it as soon as fourth quarter results are out (early February) and I will land final verdict on his 2013 forecast then (and possibly do update post for this post). Let’s get back to these topics then.

REFERENCES:

[1] http://communities-dominate.blogs.com/brands/2014/01/so-previewing-smartphone-bloodbath-year-5-who-is-still-left-alive.html

[2] http://www.asymco.com/2013/08/21/amp-index-update/

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