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"In Q4 we delivered solid performance across all three of our businesses, and generated outstanding cash flow. Additionally, growth trends in the mobile devices market continue to be encouraging. Yet, Nokia faces some significant challenges in our competitiveness and our execution. In short, the industry changed, and now it's time for Nokia to change faster."

And from All Things Digital, he is quoted:

“The game has changed from battle of devices to war of ecosystems,” Elop said, adding later that “Our industry has changed and we have to change faster.”

Although Elop didn’t name any names, he did talk about the need for the company to “build or join a competitive ecosystem,” suggesting that it might be open to shifting to a competing platform. And while he wouldn’t confirm such a move, he said that the company could pull off such a switch because of its strong brand and relationship with operators.

Nokia's operating profit dropped from €1.47b (€950m net) a year ago to €1.09b (€745m net), suffering from the margin compression that I warned would also befall the other two companies that have not embraced Android as an OS, having decided to build their own - Apple (Apple on the Margin) and Research in Motion (Blackberries Lost More Market Share Than We Bearishly Anticipated While RIMM’s Share Price Spikes: Is It Time To Revisit the Bear Thesis?).

Straight from the source, Canalys press release:

Canalys today published its final Q4 2010 global country-level smart phone market data, which revealed that Google’s Android has become the leading platform. Shipments of Android-based smart phones reached 32.9 million, while devices running Nokia’s Symbian platform trailed slightly at 31.0 million worldwide. But Nokia did retain its position as the leading global smart phone vendor, with a share of 28%. The fourth quarter also saw the worldwide smart phone market continue to soar, with shipments of 101.2 million units representing year-on-year growth of 89%. The final quarter took shipments for the year to fractionally below 300 million units, with an annual growth rate of 80% over 2009 (see table below).

In Q4 2010, volumes of Google OS-based smart phones (Android, OMS and Tapas) were again boosted by strong performances from a number of vendors, notably LG, Samsung, Acer and HTC, whose volumes across these platforms grew 4,127%, 1,474%, 709% and 371% respectively year-on-year. HTC and Samsung together accounted for nearly 45% of Google OS-based handset shipments.

... The United States continued its reign as the largest country market in terms of shipments, at more than double the size of the Chinese smart phone market. RIM recaptured first place from Apple, as the latter experienced its usual US seasonal dip, and RIM benefited from the first full quarter of shipments for the BlackBerry Torch. HTC successfully maintained its third-place ranking in the US for the third consecutive quarter, driven by its speed to market with the latest Android updates and new Windows Phone 7 devices.

‘The US landscape will shift dramatically this coming year, as a result of the Verizon-Apple agreement,’ said Canalys Analyst Tim Shepherd. ‘Verizon will move its focus away from the Droid range, but the overall market impact will mean less carrier-exclusive deals, while increasing the AT&T opportunity for Android vendors, such as HTC, Motorola and Samsung.’ Android was by far the largest smart phone platform in the US market in Q4 2010, with shipments of 12.1 million units – nearly three times those of RIM’s BlackBerry devices [the 2nd largerst platfrom]. Windows Phone 7 devices appeared too late in the quarter to take full advantage of holiday season purchasing. As a result, Microsoft lost share in the United States, from 8% in Q4 2009 to 5% in Q4 2010.

Analysis of the published country-level data shows that, around the world, the strength of smart phone performances remained diverse. In South Korea, for example, shipments grew from under 700,000 units in Q4 2009 to just under 3.4 million units in Q4 2010, making the country a top 10 market. In Japan, Android shipments have taken off over the past year, with nearly 1.4 million units shipping from local as well as international vendors, such as HTC. More Japanese vendors have also announced plans to launch Android devices in 2011, such as NEC Casio and Panasonic. Under pressure from Huawei and Samsung in particular, Nokia’s share in China slipped to 56%, down from 76% a year ago, despite growing its volume in the country by over 70% in the same period. Albeit from a smaller base, the Chinese market grew 134% year-on-year, notably faster than the US market, which grew at 64% in the quarter.

Canalys Smart Phone Analysis, Quarterly Shipment Data

Worldwide smart phone marketWorldwide smart phone market

If there is any doubt to the Android onslaught, NPD has similar findings to that of Canalys, in that Android is outselling everything in sight.

... the Android smartphone operating system (OS) significantly increased its market-share lead by 9 percentage points, since the prior quarter, to reach 53 percent of the U.S. consumer smartphone market. According to The NPD Group, a leading market research company, Apple iOS share declined 4 percentage points to comprise 19 percent of unit sales in Q4; RIM OS fell 2 points to tie Apple’s 19 percent; Windows Mobile, Microsoft’s legacy OS, fell 3 points to 4 percent, as the new Windows Phone 7 OS debuted at 2 percent; and Palm’s WebOS held at 2 percent.

... Despite buy-one-get-one promotions at both AT&T and T-Mobile, the Windows Phone 7 OS claimed less market share than its predecessor, Windows Mobile, for which handsets are still available at all four major U.S. carriers. Windows Phone 7 also entered the market with lower share than either Android or webOS at their debuts, according to NPD's Mobile Phone Track.

"At CES there were announcements from several handset providers of the intent to use the Android OS to bring new capabilities to market, including dual-core processors, 4G network speeds, and larger displays that seek to expand on the success of handsets like the Motorola Droid X and HTC EVO 4G,” Rubin said. “Android will encounter greater competition this year, however, as Apple's iPhone 4 -- the best-selling handset in the U.S. -- debuts on Verizon Wireless."

Top Five Handset Models Were All Smartphones in Q4 2010

Based on U.S. consumer purchases of mobile phones in Q4 2010, for the first time there were no feature-phone handsets in NPD’s top-five ranking. All top-selling mobile phone models were smartphones, as follows:

1.    Apple iPhone 4
2.    Motorola Droid X
3.    HTC EVO 4G
4.    Apple iPhone 3GS
5.    Motorola Droid 2

Hat tip to BoomBustBlogger  H.Kwint for the following articles: Android gains 22 pct tablet market share -analyst

Bloomberg - Google Inc.’s Android software boosted its share of tablet computers almost 10-fold in the fourth quarter, narrowing the lead of Apple Inc.’s iPad, market researcher Strategy Analytics said. Android devices captured 22 percent of global tablet shipments in the three months to Dec. 31, up from 2.3 percent in the preceding quarter, the Boston-based researcher said in a statement today. The iPad accounted for 75 percent of shipments in the period, down from about 95 percent, it said.

This is absolutely amazing performance on behalf of Android. Amazingly enough, none of these media outlets have commented on just how amazing said performance actually was. You see, Android has not even released a tablet OS yet. What Samsung, et. al. have been selling has been hacked up versions of the Android smartphone OS, complete with weaknesses and inconsistencies that come with forcing a small screen OS onto a big screen. If you think Android has taken significant market share from Apple thus far, wait until there are actually Android tablets for sale!!!!

Apple’s iPad, which has sold more than 14.8 million units worldwide since its introduction in April, faces intensifying competition from Android tablets made by Samsung Electronics Co., Motorola Mobility Holdings Inc. and Acer Inc. Google gives away Android for free to boost revenue from services such as mobile advertising and expand the market for its search engine. A wider range of cheaper devices with Google features like YouTube and Google Maps will probably erode the iPad’s market dominance, said Neil Mawston, director at Strategy Analytics. Its share of the global tablet market will probably drop to 67 percent this quarter, he said. The cheapest version of the iPad, which only has Wi-Fi connectivity and 16 gigabytes of memory, costs $499 in the U.S. Acer plans to introduce an Android powered tablet in April that will likely sell for as little as $299, Jim Wong, Acer’s head of information-technology products, said in November.

Expect to see Google shoot to the number one spot in the tablet market just as rapidly (or not more) than they did in the smartphone market. For those who have not recognized the difference between a smartphone and a tablet OS interface, this video may help.

[youtube DAXm0-HA8O8]

Larry Dignan, over at ZDnet, feels that Android's growth will be harder to replicate  for 2011. I seriously disagree and (respectfully) don't believe he could be any more incorrect. He is referencing Verizon's sale of iPhones as the main reason. Let's run down both some observations and facts to the contrary.  To begin, let's recap what appears to be the source of Larry's claim:

‘The US landscape will shift dramatically this coming year, as a result of the Verizon-Apple agreement,’ said Canalys Analyst Tim Shepherd. ‘Verizon will move its focus away from the Droid range, but the overall market impact will mean less carrier-exclusive deals, while increasing the AT&T opportunity for Android vendors, such as HTC, Motorola and Samsung.’ Android was by far the largest smart phone platform in the US market in Q4 2010, with shipments of 12.1 million units – nearly three times those of RIM’s BlackBerry devices [the 2nd largerst platfrom]. Windows Phone 7 devices appeared too late in the quarter to take full advantage of holiday season purchasing. As a result, Microsoft lost share in the United States, from 8% in Q4 2009 to 5% in Q4 2010.

To begin with, I think the Canalys analyst characterization is innacurate. The iPhone/iPad will most likely divert Verizon's focus from that of mainly Android, but the Android has proven to be a true money maker and has driven profits for all of the major carriers already and all but three of the major handset vendors. Those three handouts failed to triple or better revenues because they didn't adopt Android (Nokia, Apple and Research in Motion). Since Verizon really doesn't have a dog in this fight, it would be very unwise for them to pick sides, particularly prematurely - that is unless they have signed some sort of exclusivity agreement with Apple.

The iPhone is really just shifting distributors, while Android will be NET ADDING vendors. As iPhone gains on Verizon, it loses on AT&T. Those who feel that Verizon will offer better service should realize that they are just a carrier and they can and probably will get bogged down by the extra bandwidth use just as AT&T did. After all, they all basically lease the spectrum from Sprint/Clearwire anyway. The only way Verizon can prevent this network degradation is to implement caps and surcharges which I can tell you as an ex-Verizon customer they are very prone to do. Verizon is putting some marketing muscle behind Android, offering deals to adopt new iPnones, but this aimed primarily at pulling existing iPhone business from AT&T, not netting new iPhone subscribers. In the meantime, AT&T is offering a trade in your old [iPhone] promotions, touting its newer, higher-powered Android offerings as an enticement. From BGR.com:

If you have not witnessed the AT&T dual core Motorola Atrix  in action, you may be missing a new paradigm in form factors and usage. See If You Need More Proof Of Apple’s Inability To Keep Up With Google’s Android & Over 100 Other Android Hardware Vendors… Though Verizon is probably slated to sell a lot of new iPhones, many of those new phones will most likely be to existing iPhone users. AT&T on the other hand, will most likely join the extreme revenue that every other carrier enjoyed (but them due to being wedded primarily to the iPhone) and sell (net, net) more new Androids than Verizon will sell iPhones.

Then we have the margin issue with Apple again. I have been clamoring that Apple's margins will get chopped by Android's commoditizng the smartphone space - both on the lower and and the higher end. See Apple on the Margin and my on air proclamation just hours before Apple released earnings and declared - surprise, surprise - a drop in margins. Go to 3:40 in the video... [iframe http://plus.cnbc.com/rssvideosearch/action/player/id/1618325359/code/cnbcplayershare 400 380]

Apple needed the Verizon distribution deal much more than Verizon needed it. Android has already surpassed Apple by a significant margin, and the iPhone hasn't started selling from its new home yet. Thus when it came to negotiating terms, it is essentially guaranteed that Apple got nowhere near the sweetheart deal that it originally negotiated with AT&T at $600 per phone plus a cut of the servicing fees. Although AT&T consequently negotiated that outrageously Apple-centric deal towards a more neutral perspective, it was still quite rich. Expect the Verizon deal to come in at a fraction of that struck with AT&T, which means that Apple will have to push more phones through Verizon than it did/does through AT&T just to break even on previous numbers.

The Canalys report is quoted: "More Japanese vendors have also announced plans to launch Android devices in 2011, such as NEC Casio and Panasonic." Add to this the fact that Sony Bites The Bullet & Joins The Android Camp, Adding Its Entire Suite of PSOne Games To The Android Platform and even Nokia, currently the world's largest smartphone vendor by installed base, may join the Android camp.

Then there is the most obvious. Larry Dignan is quoting a Canalys report which literally starts as follows:

Canalys today announced its projection that Android will continue to grow at more than twice the rate of its major smart phone competitors in 2011, despite market concerns over platform fragmentation and the arrival of the iPhone 4 on Verizon in the US. According to Canalys Q3 2010 estimates, the Google-backed platform already claims a 25% share of the worldwide smart phone market, with over 20 million shipments of Android-based worldwide.*

‘The growth of Android has been phenomenal, but so too has the number of related devices launched with different hardware and software specifications,’ said Canalys Principal Analyst Chris Jones. ‘This has led to the market perception of it as a fragmented platform, though we believe that growth will continue as the pace of Android OS upgrades slows.’

The analysts actually agree with the BoomBustBlog in full, save for the fact that I don't believe the rapid growth of Android innovation will slow anytime time soon. This rapid innovation is how Google keeps copycats at bay who wish to fork Android. Anybody, ex. Chinese companies who attempt to fork will have an outdated OS in a matter of months, about the minimum amount of time it would take to get a differentiated product to market if you were one of the fastest vendors on earth. Basically, Google is arranging it in such a fashion in that the only way to benefit from the latest and greatest Android is to have Google's Android.

The momentum behind Android is indisputable now that it is the number one selling OS in all markets. There have been several pundits stating that this is not a zero sum game and that their is room for more than one OS vendor to co-exist. While I agree that this is not a zero sum game, it is far from a linear one, and the net effect may be similar to zero sum. I have explained the logic behind this several times in the past, from different perspectives:

1. A Glimpse of the BoomBustBlog Internal Discussion Concerning the Fate of Apple
2. Math and the Pace of Smart Phone Innovation May Take a Byte Out of Apple’s (Short-lived?) Dominance
3. Apple on the Margin
4. Android Now Outselling iOS? Explaining the Game of Chess That Google Plays in the Smart Phone Space
5. 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
6. Empirical Evidence of Android Eating Apple!
7. More of the Android Onslaught: Increasing Handset Revenues and Growth
8. A Quick Peek Into the REAL WORLD Logic That Went Into Building the BoomBustBlog Apple Model: It’s Called Compression!!!

Long story short, the more handsets carrying a specific OS sold, the more advertisers and developers will be drawn to that platform. Google can afford to compress margins to ZERO because it is not in the hardware business and its OS is open source. Apple, Nokia and RIM have no such luxury. Thus as the space is inevitably commoditzed, margins are compresses yet volume of units sold actually increase - Google benefits at all other manufacturer's loss... That is unless they are able to do what Google has accomplished, and that is change the actual business model of the industry versus combating the industry leader on their terms.

What does this all mean? Well, to begin with, it shows that our contrarian bullish stance taken on Google earlier last year was as on point as can be. Taking Android's number one status across the board, I invite Professional/institutional subscribers to access a subset of the model that we used to create the sensitivity analysis for the 63 pg Google Forensic Valuation to plug in your own assumptions. Click here for the model: Google Valuation Model (pro and institutional). Click here to subscribe or upgrade. Looking through said model, we see that the data that it was populated with was very, very conservative...

I suggest updating the valuation model using the latest numbers from Canalys and NPD, then select the appropriate valuation scenario. It should be taken as a given that Google's Cloud Services will "kick off" with the success of Android, since Android is essentially a front end to the Google Cloud.

Once you have made the necessary adjustments, review the scenario summary which gives you a complete sensitivity analysis for a plethora of what if scenarios based upon your inputs.

Here is the complete analysis of smartphone and vendor handset growth up until Q3 2010. I will parse the numbers and release the most recent quarter soon, and make it available to subscribers. Be sure to scroll through the entire spreadsheet model below using the "<" and  ">" buttons in the lower area of the window. The model is very, very extensive!

[iframe https://spreadsheets.google.com/pub?key=0Ai5WJsM3KjltdGJKRkVRbGdod05pNnlxRW14SU9tTXc&hl=en&output=html&widget=true 620 450]

More Reggie Middleton on Google:

1. The Complete, 63 pg Google Forensic Valuation is Available for Download

2. Navigating BoomBustBlog Subscription Material To Find The Google Valuation Drilldown

3. BoomBustBlog Research Hits Another One Out the Park! Google up nearly 10% after hours

4. Google 4th Quarter Performance: Strong Performance, & Better Yet Healthy Investment Into The Business

5. There Is Another Paradigm Shift Coming in Technology and Media: Apple, Microsoft and Google Know its Winner Takes All

6. The Mobile Computing and Content Wars: Part 2, the Google Response to the Paradigm Shift

1. An Introduction to How Apple Apple Will Compete With the Google/Android Onslaught
2. Don’t Count Microsoft Out of the Ultra-Mobile Computing Wars Just Yet
3. 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
4. A First in the Mainstream Media: Apple’s Flagship Product Loses In a Comparison Review to HTC’s Google-Powered Phone
5. After Getting a Glimpse of the New Windows Phone 7 Functionality, RIMM is Looking More Like a Short Play
6. RIM Smart Phone Market Share, RIP?
7. Android is gaining preference as the long-term choice of application developers
8. A Glimpse of the BoomBustBlog Internal Discussion Concerning the Fate of Apple
9. Math and the Pace of Smart Phone Innovation May Take a Byte Out of Apple’s (Short-lived?) Dominance
10. Apple on the Margin
11. RIM Smart Phone Market Share, RIP?
12. Motorola, the Company That INVENTED the Cellphone is Trying to Uninvent the iPad With Android
13. Android Now Outselling iOS? Explaining the Game of Chess That Google Plays in the Smart Phone Space
14. 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
15. Empirical Evidence of Android Eating Apple!
16. More of the Android Onslaught: Increasing Handset Revenues and Growth
17. Many More Black Eyes for the Blackberry? A Complete Forensic Analysis of Research in Motion
18. The BoomBustBlog Multivariate Research in Motion Valuation Model: Ready for Download
19. The Complete, 63 pg Google Forensic Valuation is Available for Download
20. iSuppli Continues to Validate BoomBustBlog’s Original Thesis: Android as the Viral Game Changer!
21. BoomBustBlog Research Hits Another One Out the Park! Google up nearly 10% after hours, true blowout earnings unlike JPM
22. As I Warned in June, DO NOT DISCOUNT Microsoft in This Mobile Computing War! Their Marketing Campaign is PURE GENIUS! and it Appears as if the Phone Ain’t Bad Either
23. Reggie Middleton Wasn’t the ONLY Openly Apple Bear in the Blogoshpere, Was He?
24. A Quick Peek Into the REAL WORLD Logic That Went Into Building the BoomBustBlog Apple Model: It’s Called Compression!!!

More Reggie Middleton on the Future of Mobile Computing

1. The Future of the Mobile Computing Wars: Contiguous Rich Client Computing!
2. Blackberries Lost More Market Share Than We Bearishly Anticipated While RIMM’s Share Price Spikes: Is It Time To Revisit the Bear Thesis?
3. Will The Meritocratic, Playing Field Leveling Nature Of The Web Fall Victim To The Net Neutrality Scheme? If So, Many High Traffic Low Margin Sites (Read The Little Guys) May Go Bye-Bye