iSuppli Continues to Validate BoomBustBlog’s Original Thesis: Android as the Viral Game Changer!

iSuppli has released a summary of its latest report:

In a sign of the growing momentum behind Google Corp.’s Android, makers of handsets utilizing the operating system represented the majority of the fastest-growing firms among the Top 10 smart phone brands in the second quarter, according to the mobile and wireless research firm iSuppli Corp.

Droid phone specialist HTC Corp. achieved industry-leading growth, with its smart phone shipments rising by a stunning 63.1 percent in the second quarter compared to the first. Meanwhile, on the strength of its Android-based Galaxy line of smart phones, Samsung Electronics posted the second strongest performance, with a 55.6 percent sequential rise. New Android licensee Sony Ericsson came in fourth in terms of growth, with shipments rising by 15.4 percent. Finally, Droid-focused Motorola Inc. ranked fifth, with an increase of 12.5 percent.

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“Every brand that has put effort into designing smart phones using Google’s mobile operating system is riding the Android wave,” said Tina Teng, senior analyst for wireless communications at iSuppli. “From the spectacular growth of HTC and Samsung, to the steady advances of Motorola, Android is the secret sauce for smart phone growth for many companies in 2010.”

We have attempted to make very clear that Android is poised to become the number one OS very soon. Reference:

1. There Is Another Paradigm Shift Coming in Technology and Media: Apple, Microsoft and Google Know its Winner Takes All
2. The Mobile Computing and Content Wars: Part 2, the Google Response to the Paradigm Shift
3. An Introduction to How Apple Apple Will Compete With the Google/Android Onslaught
4. This article should drive the point home: An iPhone 4 Recall Will Hurt Apple More By Opening Additional Opportunity for Android Devices Than Increased Expenses
5. Android is gaining preference as the long-term choice of application developers
6. Android Now Outselling iOS? Explaining the Game of Chess That Google Plays in the Smart Phone Space
7. More of the Android Onslaught: Increasing Handset Revenues and Growth

Also from the release…

HTC on Center Stage
HTC’s Android success can be traced to wireless operators that want to showcase the capabilities of their upgraded networks by offering handsets with sophisticated features to subscribers. For example, U.S. wireless carrier Sprint Nextel Corp. is offering HTC’s EVO 4G, a feature-packed Android handset that can capitalize on the high speed of its WiMAX-based 4G network. To keep its momentum going, HTC is expected to offer an Android phone that supports Long Term Evolution (LTE)—the other major standard for 4G.

HTC’s share of global smart phone shipments in the second quarter rose to 8 percent, up from 5.3 percent in the first quarter, allowing the company to solidify its No. 4 position in the market.

And in regards to other major Android vendors…

Meanwhile, the share of No.5-ranked Samsung rose to 4.6 percent during the same period, up from 3.2 percent in the first quarter. The company’s advance is being driven by its Android-based Galaxy S smart phones, which are enjoying strong acceptance from consumers. In contrast, Samsung’s phones using its own bada platform don’t appear to be garnering as much interest. The company’s ranking in the global smart phone market rose one position from sixth place in the first quarter.

…

Motorola’s Droid Success
While Motorola’s second-quarter growth was relatively modest compared to the high-flying results of HTC and Samsung, there are signs that the company’s decision to put all its eggs in the Android basket are paying off. On the strength of its Droid product line, Motorola now has experienced five consecutive quarters of growth starting in the second quarter of 2009—and has outgrown the overall smart phone market for the last four quarters.

Motorola’s Droid strategy is paying off. In North America, Motorola is benefitting from its advertising campaign with Verizon. Motorola also has been refreshing its smart phone portfolio constantly, keeping consumers interested in its product line.

However, even this success wasn’t enough to keep Motorola from slipping one position to sixth place, down from fifth in the first quarter because of Samsung’s prodigious growth.

We outlined the technically superior features of HTC’s flagship phones in “A First in the Mainstream Media: Apple’s Flagship Product Loses In a Comparison Review to HTC’s Google-Powered Phone” as well as supplying a graphical comparison of the major Android handset releases compared to their most potent competition – Research in Motion Blackberries and the Apple iPhone:

Note to Subscribers, this chart takes precedent over the one included in the Apple business strategy document, Apple business model note. This also ties in with Apple iPhone Profit Margin Scenario Analysis Model.

iSuppli’s analysis also validates our forecasts that Apple will lose additional market share to Android handsets in the upcoming quarters:

Slight Setback for Apple
Amid the advance of Android, Apple Inc. suffered a 4 percent drop in smart phone shipments in the second quarter. However, the decline doesn’t represent a major setback for the benchmark iPhone brand. Apple’s decline in the second quarter was because of the transition from the iPhone 3G S to the iPhone 4. The iPhone 3G S was reaching the end of its life, causing sales to drop off. Meanwhile, Apple had trouble keeping up with iPhone 4 demand, resulting in the small decline in shipments. The contraction caused Apple’s share of smart phone shipments to fall to 13.9 percent in the second quarter, down from 15.7 percent in the first quarter. Nonetheless, the company maintained a firm grip on third place in the global smart phone market.

This is occurring exactly as we publicly forecast two quarters ago. As excerpted from Empirical Evidence of Android Eating Apple!:

Below, please find the results of our market share and market penetration drill down for Apple. We have performed identical analysis for Nokia, Research in Motion and HTC. This dynamic model (complete with data populated from Gartne http://boombustblog.com/index.php?option=com_wpmuadmin&blog_id=1&task=post.php&action=edit&post=2922&message=1r, Canalyis, Nielson and other sources) provides a very rich, in depth view off the trends in handset sales growth, market share growth, and smart phone market penetration (an aspect I never see discussed on the web) for all of the players mentioned above. It is available for download as an Excel model to BoomBustBlog professional and institutional subscribers, here: Smartphone Market Model – Blog Download Version. Those who wish to subscribe or upgrade their subscription can do so here.

I often scan the comment sections of many blogs and websites to get a feel for the readers’ perspective. One premise I see espoused often is that Android is succeeding at the expense of Nokia, RIM and MSFT, and not that of Apple. Both I, and the facts, disagree with this notion. As it stands now, Android is literally eating Apple’s smart phone market share, and as of last quarter – which does include a partial month of the big sellers from both the Apple (iPhone 4) and Android (Evo, Samsung Galaxy, Droid X) camps – Apple’s phone sales are actually growing slower than the market is expanding. In comparison to the near parabolic growth of the last few years, it is evident that that growth is going somewhere. Where do you think it is going? The potential for lag in phone sales right before a major hardware upgrade should be taken into consideration, for there was probably a lull in Apple phone sales in anticipation of the iPhone 4 release, but the same can be said for the Android handsets as well (all around the month of June).

Below is a graph showing the longer term trend of Apple market share in the smart phone space. It illustrates the explosive growth Apple has had through its iPhone series, and it also shows some seasonality (ex. lull before hardware upgrade season, etc.). As you can see, the growth trend, viewed either directly or as a moving average, shows marked downward momentum. Of course, it is highly unreasonable to expect a company to continue to grow at the pace that Apple has, but that is exactly what many Apple valuation models that I have come across have – literally hard-coded in. This is folly, in my opinion – particularly considering the effect of the Android competition that is already showing up. If you look closely, Apple’s smart phone market share is already showing NEGATIVE growth!

Since I know that the chart may be a little difficult to read at the tail end encompassing several years of data, I have taken the liberty to drill down to the past year to get a closer look. Remember, Android sales didn’t really get started until 8 months ago, and the big surge didn’t occur until the Evo/Droid X/Samsung Galaxy series were launched in June, July and August – most of which is not captured here. The same is to be said for Apple and the iPhone 4.

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Despite increases in both the overall mobile market and more importantly, the smart phone contingent’s penetration of said market:

1. Apple’s smart phone shipments are showing a negative growth trend
2. and more importantly, Apple’s smart phone market share is experiencing a very sharp downward trend as shown by both direct observation and that of the 2 period moving average.

By trailing the actual growth of the smart phone market, it is far from a foregone conclusion that Apple, nor any other company for that matter, can necessarily tread water by relying on the expansion of the smart phone market. It is quite possible for the winner in this space to capture enough market share to put a material hurting (in terms of valuation multiples) on the loser, primarily if that winner becomes a de facto standard (ex. Android OS, MSFT OS, iOS or even Nokia’s Symbian OS) that can lock out the users of the competing devices for much of the smart phone functionality.

These other articles should also drive the point home:

• An iPhone 4 Recall Will Hurt Apple More By Opening Additional Opportunity for Android Devices Than Increased Expenses
• A First in the Mainstream Media: Apple’s Flagship Product Loses In a Comparison Review to HTC’s Google-Powered Phone
• A Glimpse of the BoomBustBlog Internal Discussion Concerning the Fate of Apple
• Math and the Pace of Smart Phone Innovation May Take a Byte Out of Apple’s (Short-lived?) Dominance
• Apple on the Margin
• Android Now Outselling iOS? Explaining the Game of Chess That Google Plays in the Smart Phone Space
• How Google is Looking to Cut Apple’s Margin and How the Sell Side of Wall Street Will Enable This Without Sheeple Investor’s Having a Clue
• Empirical Evidence of Android Eating Apple!

The profitable Research in Motion Forensic Valuation Analysis is now available for free

Now that Research in Motion has reached our valuation target and offered the opportunity for material gain for our subscribers, I have decided to released the full 45 page professional Forensic Valuation report to the public. It is quite extensive, and has been quite accurate to date - RIMM Forensic Analysis and Valuation – Professional & Institutional: Formerly available to Pro and institutional subscribers, now released to the public (simply click the link). The BoomBustBlog Multivariate Research in Motion Valuation Model is available only as a professional subscription, for it allows you to update and change the assumptions/inputs in our valuation model to keep pace with this rapidly developing market, ex. the introduction of RIM’s new QNX tablet.

And from the valuation section of our Forensic Report (those who have downloaded it can refer to page 30)…

As you can see, we did a phenomenal job at anticipating the share price fall and the practical floor. Those of you who used options and/or leverage with proper risk management should have benefited handsomely. Of course, this particularly industry segment moves much more rapidly than most, which is why we have taken the opportunity to add flexibility in our valuations and analysis (page 32)…

As is usual, I welcome any and all to compare BoomBustBlog research to anything available from the sell side. I am confident many will wish to subscribe after an apples to apples comparison. This report release to the public is done in anticipation of the much more comprehensive, 65 page Google Forensic Valuation (hopefully by later on today or tomorrow morning) and the upcoming Apple Forensic Valuation. Please keep in mind that the Research in Motion story is not over, by a long shot. It looks as if they may have pulled a much needed rabbit out of their hat with their new tablet, but at this point it is still vaporware from our perspective since I have yet to get my hands on one. If it is what it is chocked up to be, it will then be up to management to execute. Their track record over their last 3 attempts at larger screen form factors have been wanting, at best, but maybe the fourth time around is a charm.

Professional subscribers should take advantage of the interactive valuation tools that I have made available to adjust the assumptions in the valuation model to keep abreast of the RIM situation (see RIMM Multivariate Valuation Model). We have not updated the assumptions since before the earnings announcement, so there is some fine tuning to be done regarding the valuation report, but the gist of the story remains the same, and the report’s premise remains quite valid. I recommend all paying subscribers use the market share tools to assist in fine tuning their assumptions moving forward. This is a rapidly changing landscape, and what was once the underdog may become the champion – seemingly overnight. I, personally, am still quite skeptical of RIM management’s ability to execute in this environment, but I am keeping my eyes open.

Related Subscription content (click here to subscribe):

• Smartphone Market Model – Blog Download Version – all paying subscribers
• Mobile Operating System Market Share Model – all paying subscribers – This model is key to showing the trends across operating systems, and not just handset manufacturers.