Apple's flagship device, the iPhone 5S is facing tremendous competition from Android powered handsets. We now have devices that cost more then 15% less than the premier iPhone, yet run circles around the Apple flagship in nearly every single worthwhile category.Unlike the Android beasts of the recent past (sans the Samsung Galaxy series) these newer Android devices aren't only geek and engineer's toys - they are coming to market backed by centimillion dollar marketing budgets. If you remember, this is how Apple caught the crown.

Now, it's not as if Apple can't do better from an R&D, engineering and production perpective - it can. It's just that the company is trapped, hamstrung, by its need to incessantly safeguard its above industry average margins. Of course, whatever goes up, must come down, and we'll be seeing more of that in Apple in the coming quarters.

The "S" products are Apple's method of stuffing margins by selling what is essentially a commodity product at a premium price. Essentially, they recycle last year's model with a new chip and camera and relaunch it as essentially a new device. They have gotten away with this for some time now, but over the last year, the Android onslaught has been so aggressive that as Apple stuffs margin in lieu of innovating, the Androids pull ahead in capability and innovation while at the same time effecively dropping prices. The result is now very obvious as the video below, put together in the NYC Grand Central Station Apple store, attests to...

Following up on Deconstructing The Most Accurate Apple Analysis Ever, I am offering subscribers an updated valuation of Apple now that it has fallen to EXACTLY where I warned subscribers in October (the week of its all-time high of about $707 it would fall) to. After playing with the iPhone 5 for about a week, I told subscribers to expect the stock to bounce up against the pessimistic band of our valuation analysis. Apple last traded at $420, this is how I put it 5 months ago...

image124

This report is still available for download to paying subscribers:

With this report and Apple's subsequent ~40% or so drop, we have profited from Apple on both the long and short sides (After My Contrarian Calling Apple's 3rd Miss Accurately, I Release My Apple Research Track Record For 2 1/2 Years)

Now it's time to discuss where the stock will go from here. Valuation and specifics are the purview of paying subscribers only. All subscribers may email me for my valuation numbers (a quick summary only) and professional/institutional subscribers may contact me for a 5 minute discussion on this topic. I will have an updated valuation report out with 48 hours, likely by tomorrow midday. In the meantime I'll share a smattering of metrics, facts and trends that the sell side is still refusing to face. Let's dance, shall we?

Apple Is In Trouble – Plain & Simple!

Apple has successfully transformed itself from a portable and desktop computer company to a mobile device company, and managed to do so right at the crux of the mobile computing boom. As such, it has benefited mightily, briefly becoming the largest and most respected company in the world. Alas, what goes up must eventually come down. The largess revenues and margins gleaned by Apple brought massive competition, and in the case of Google’s Android, business models specialized in gutting the fat margins which caused Apple to prosper. As a result, margin compression ensued, but very few actually saw signs of it until it was too late (reference Deconstructing The Most Accurate Apple Analysis Ever).

Take note of the chart below which show Apple’s expenses at the corporate level spike.

image109

The spiking of expenses is corroborated by nearly all fundamental profitability metrics. Before delving into these metrics, let’s review how they margin compression is actually being leveraged. You see, Apple’s margin problem is not emanating from just aggressive competition with smart business models, ubiquitous cloud services (Google) and low cost means of production (Samsung). Apple is now paying the piper for its shift into mobile by having its pipeline effectively saturated with mobile products, thus nullifying the margin expansion that the move into mobile products have brought on. Mobile products had higher margins than their desktop/laptop counterparts. The chart below shows Apple as a nearly completely mobile products company.

 image107

Now, one may say, “but even if they have turned completely into a mobile products company, margins should stabilize, not compress!”. How true, young grasshopper, except for the fact that as Apple has nearly completed its transformation, Google has started compressing margins in the mobile space, which has in turn started to put pressure on the margins of this nearly completely transformed company. Look at the progression of the revenue/product mix over time.

As can be seen from the chart below, Apple is not a phone/tablet company…

image111

From margin perspective, one may see an extra hit to margins as Apple has actually had a relative increase in Mac sales, whose margins are materially lower than iPad and iPhones. This will be compounded by iPhone 5 and iPad mini sales, both of which have lower margins than the products they replaced or are cannibalizing.

Now, follow the trend in entity level margin compression (below) while cross referencing the (the product mix revenue above) and you will see that there is a near saturation of mobile products, with lesser margin tablets and even lower margin notebooks creeping in over the last three quarters…

As a matter of fact, this has been the largest drop in margin (in terms of %) since I’ve followed the company.

image106

Oh, and BTW, you can have shrinking margins AND shrinking market share, re: 4:58 in this CNBC video below (watch the whole clip if you haven't seen it before).


So, exactly how did this all come to be?

google-campus-android-statue

 Stay tuned. Tradable numbers will be forthcoming to subscribers (click here to subscribe) within 48 hours. To all retail investors (pros should know better) who do not subscribe, please do not attempt to read into what's in the subscription material by guessing from my public posts. All of the opinion and analysis that I make public has been of extremely high quality and quite accurate in aggregate, but it was not intended to be used as investment advice. That is what you pay for.

Published in BoomBustBlog

Samsung-Galaxy-Note-3

Samsung has started selling the newest edition of its venerable Note series, the Galaxy Note 3. Those of you who follow me know that I have predicted Samsung taken the reigns from Apple with its Android powered Galaxy series of phones as far back as 2011, reference Deconstructing The Most Accurate Apple Analysis Ever Made ....

This prediction came true and the financial positions based upon it paid off - in Spades!!! I also made additional observations, most notably that Google's Android business model will bring about margin compression across the board and not in just the Apple camp. Was I right? Well... Samsung Follows Footsteps Of Apple, HTC, Nokia - Wasn't That Quick?

The launch of the Galaxy Note 3 shows several things:

  1. Samsung has been extremely successful in creating and defending market niches
  2. Samsung has beat Apple at its own game of volume plus (not or, but plus) premium pricing
  3. Samsung is trying to go for margin by selling its devices at a premium 
  4. Samsung's success may be its downfall, just as was the cast with hubristic Apple management. Heavy hardware R&D was not the order of the day. Combine this with the fact Samsug's (and Apple's) runaway success in terms of sales volumes naturally meant that they will have problems in procuring the best components, particularly when the manufacturers/vendors of said components are your direct competitors. This happened to Apple buying chip/memory/CPUs from Samsung, screen and camera tech from LG and Sony, etc. The Android less then free model has turned contractor and vendor into enemies. Now, Samung is facing the same problems that took its erstwhile, yet defeated enemy down.

This is most notable in the lack of OIS (optical image stabilization) in the Samsung Note 3. Basically, this physical feature allows for the device to take more accurate, sharper and accurate pictures given the same amount of resources. The note was slated to have this feature, but it fell through because the vendor couldn't produce the volume needed to satisfy the needs and demands of Samsung's flagship device.  That or the competition didn't want Samsung to have it, just like Samsung didn't want Apple to have its best component technology.

I want you to look at the difference this provides in both still photography and videos...

The Note 3

CAM00209

Teh G2...

20130930 133718

The Note 3...  20130930 133726

 

 

The G2...

CAM00210   

 The Note 3...20130930 133734

The G2

 CAM00211  

t's not just the still camera that's significantly better. The video is smoother, sharper, clearer and faster - at up to 60 frames per second in full HD (the Note 3 records in 4k UHD, but since the screen doesn't support that resolution it's very difficult to guage quality. When I tested it, it still paled to the G2's 1080p results.

Now, Samsung did attempt to compensate by adding what is called digital image stabilization. This is basically software interpreting and attemptin to replicate optival image stabilization. It just doesn't work - not in this case nor any other case that I know of.

The LG G2 screen is brighter and more crisp than the Samsung flagship. The form facter displays better engineering chops in my opiniom through designe and is more compact due to the control buttons being on the back of the phone. The G2 bits a 5.2" screen into a device the size of a Galaxy S4. The Note's screen is on 5.7", a mere half inch larger in a device well over an inch bigger. Granted, it does have a Wacom digitizer and pen, but I used it rarely after the novelty wore off. The battery life in the G2 is also vastly superior. 

All of this in a device that retails for a full $200 less than the Galaxy Note 3. Do you remember what happened to Apple when it started charging a truly undeserved premium for its phones?

 

Next up, we look into what the new Apple iPhone 5S and 5C portend for Apple investors and speculators, then we move on to security. How do  you secure your phone and communications from the NSA, nosy people, or devious hacker types.

Published in BoomBustBlog

Within two years of getting the mobile computing crown (toppling Apple and insuring that Nokia and Blackberry didn’t stand a chance), Samsung is already prepping to relinquish it. I know, the hoi polloi screams from the common street analyst’s rooftop, incessantly chanting “… but Samsung is dominating handset sales, creating and literally owning categories, and essentially out Appling Apple!”

Well, the reason why I apparently out-maneuver the Street in this space (as in others) is not vastly superior intellect nor a LiPoSilica Oxide powered crystal ball borne from some extraterrestrial technology. It’s actually so much simpler than all of that.

I pay attention!

If you look at the rise and fall of:

  1. Blackberry (formerly known as RIMM, reference When Berries Go Bad)
  2. Apple (formerly known as unbeatable New Apple Research Coming Up, But BoomBustBloggers Don't Need It For Apple's Performed Exactly As I've Forecast!)
  3. and Samsung (currently [and ignorantly] known as the market leader, reference Samsung Follows Footsteps Of Apple, HTC,…and Samsung Will Be Ready To Do That Fruit Thing, Just Like Blackberry & Apple - Courtesy Of Google, #MarginCompression!

You will see an undeniable patter of revenue and profit peaks, then revenue peaks (sans the profit peaks), then outright margin compression. I’ve pointed each out in explicit detail to subscribers, causing me to wonder why I’d send the alarm on Samsung for freeJ. Well, there’s a reason for everything!

Once it comes to profitability and margins, We Reached "Peak Premium Smartphone… Ignoring raw fundamentals and margins, let’s look at the newest crop of hardware. The much ballyhooed Samsung Galaxy S4, although breaking sales records, produced much less revenue that both Samsung and its analsysts anticipated. From a technological standpoint, it's simply a spec bump from its predecssor (the S3) and a collection of software gimmicks with the hope of eventually forking Google's Android in an attempt to stem the inevitable margin compression tide coming down the pike.

The upgrade to the pre-eminent phablet, the Samsung Note 3, was much anticipated by many - including yours truly. Again, it was essentially just a spec bump (using widely available components, at that) that didn't even have the top of the line specs due to Samgung's extreme success as of late.

You see, because Samsung sells so many phones now, it just can't simple procure the best and the latest tech to incorporate into its gadgets. It has engage into very heavy supply chain management and logistisc, ala Apple. Samsung is also encountering the same foibles that Apple did, namely supplying what seems like insatiable demand - even if that means including inferior parts. The Note 3 uses essentially the same Sony sourced Exmor camera that the Galaxy S4 uses (as well as about half the market) with not jump in specs. Performance was reached (or at least they tried to reach it) by using additional software tricks and gimmicks such as digital image stabilization (essentially, fancy cropping and interpolation). This was done because the hardware components that allow for lossless/noiseless optical image stabilization were not available to Samsung in the volume that it needed. This is important, because the camera is one of the most important and oft used parts of a smart phone. Samsung has basically upgraded the Note 2 via a faster commoditized CPU and screen while its competitors have leapedfrogged it in both performance and innovation by truly creating something different, better, and useful.

Does this some familiar? Reference 

 Deconstructing The Most Accurate Apple Analysis Ever Made - Share Price, Market Share, Strategy and All

andriod-vs-apple

Next up, I will show you - visually, how Samsung has already done the Apple thing. After that, we will address the abysmal state of security in the mobile realm and how government disinformation strives to keep it that way. Most importantly, for my subscribers, I will walk you through exactly what it is you can do about it.

Published in BoomBustBlog

The Canadian condo market is running into a precarious over-supply situation with large inventories slated to be entering the market in 2014 and 2015. Major centers such as Vancouver, Montreal and Toronto are witnessing a rapid pace of condo construction, despite falling sales. The demand for housing overall is slowing down, with sales in the last few months of 2013 falling on y-on-y basis. In most major Canadian markets there is an increase in listings and decrease in sales (even though prices are still somehow rising, which should in and of itself be indicative of a problem).

However, what is holding the housing market from the “steep and prolonged fall” that the American and periphery EU markets experienced is the extremely low interest rate offered by the banks in a bid to maintain their top line and bottom line. (Note: ~>70% of the mortgages in Canada are insured by Canada Mortgage and Housing Corporation.  The banks therefore are more than motivated to lend for home mortgages). This “ZIRP” (Zero Interest Rate Policy) environment portends material volatility when it comes to an end, either voluntarily through the prospect of organic economic growth, or involuntarily through natural market forces coming to bear. The reason is that at no time in the history of the developed world has interest rates been this low for this long.

20130406 FBC371

The caveat is, economic growth, the primary reason for cutting rates this low for this long – has never materialized, dispute the flood of free or even negative interest rate money that's been flooding the markets. 

When (and that's "when", not "if") risky asset prices decide to revert to mean the snapback to bank balance sheets and economic profit has the potential to be devastating. Yes, even to those conservative Canadian banks.

Click to enlarge, and study carefully...

Reggie Middleton Canadian Condo Bubble

... and on the topic of "Bail-ins"

All paying subscribers, feel free to download.

File Icon Is There A Canadian Condo Bubble? (Residential Real Estate)

Non-subscribers can purchase this report through a day pass subscription via PayPal or Credit Card

Published in BoomBustBlog

The WSJ reports - BlackBerry to Slash Workforce by Up to 40%: Layoffs to Cut Across All Departments as Phone Maker Confronts Shrinking Sales. This was a foregone conclusion. If you remember, we called the very profitable Blackberry (then RIMM) short in 2010. With the advent of the new touch screen Z10-type devices, the stock rallied as many thought Blackberry had a snowball's chance in hell. They didn't! Even if Blackberry was on plane technically, which I feel they weren't for their devices were on par with many Android/Apple at launch, but Android's innovation/development/growth rate is off the chart. This means that whatever is cutting edge this quarter is old hat 3 quarters from now. 

How could Blackberry keep up with this pace? They simply can't. Even if they could, there's this issue of margin compression. You see, as tech in the Android space advances, the prices drop - precipitously! Let's reminisce, referencing Blackberries, Apples & Fruit Borne Successitis - The Problem With Excess Profits Is Hubristic Management Tends To Take Eyes Off The Prize!!! 

- or-

Looking Through Windows To See The Big Data On Fruit - Or Android Gets 'em Again

 

In early 2010 I warned on Blackberry (then RIMM), with market share loss to Android being the prime determinant... . I put significant data out in the public domain to illustrate my point and put explicit price points out for subscribers, ie. RIM Smart Phone Market Share, RIP? Was I right?

Blackberry market share vs margin correlation analysisBlackberry market share vs margin correlation analysisBlack

I explained this in detail in the post "Cost Shifting Your Way To Prominence Using The Network Effect, Or Google Wins - Apple, RIM & Microsoft Have ALREADY LOST!". Failure to achieve the network effect effective is tantamount to a failure to be able to control you margins, long term. Of all people to of know this, who do you think preached it most convincingly? 

Margin compression was sure to kill Blackberry, even if they did hit their sales numbers, which they didn't and couldn't!!!

This is how Google did it...

 

Reference our Blackberry research as well...

Right On Time, My Prediction Of Apple Margin ... - BoomBustBlog

 

 

Published in BoomBustBlog

I believe I was one of the first financial types to extol both the virtues and the potential of Samsung in the handset space early on. Way back in the days of (3 years ago) the Galaxy S2 I said that Samsung, with the assistance of Google's Android, will eat Apple's lunch. Those who don't regularly follow me should reference  and Deconstructing The Most Accurate Apple Analysis Ever, to wit...

Well, nothing lasts forever and I've said it before, and I'll say it again...

 

You have to keep innovating in the mobile handset space or your margins will start dropping and your product will be commoditized. This is guaranteed! Paying subscribers should feel free to email me about this if they have any questions. Institutional and professional subscribers are free to call me and chat in depth as well. 

I've written several articles on this topic, with Samsung, Apple, RIMM, NOK and HTC used as prime examples:

n early 2010 I warned on Blackberry (then RIMM), with market share loss to Android being the prime determinant... . I put significant data out in the public domain to illustrate my point and put explicit price points out for subscribers, ie. RIM Smart Phone Market Share, RIP? Was I right?

Blackberry market share vs margin correlation analysis

 

, it's impressive. This tech is moving lightning fast and the price points aren't budging, although the margins are collapsing in this fast moving space.

 

The Apple Profit Engine Has Stalled & Is Rolling Downhill

Apple is facing a shart decline in the margins of its top two value drivers. May I also add that these two value drivers are 83% of Apple's revenues and an even greater portion of its profits. Such a drastic concentration in only two products who have reached their zenith is not a good thing!

Click the graphic once to view, twice to enlarge to printer quality...

Reggie Middletonss Ultimate Apple Value InfographicReggie Middletonss Ultimate Apple Value InfographicReggie Middletonss Ultimate Apple Value Infographic

Of course, there is a point at which Apple is a good buy. After all, they have a lot going for them. The question du jour is, exactly what is that point? I refer my subscribers to the research documents below for the answers... 

The following articles explain margin compression in what seems like market leaders:

  1. Looking Through Windows To See The Big Data On Fruit - Or Aug 7, 2013 - ...and this was exactly as predicted in Samsung Will Be Ready To Do ThatFruit Thing ... and Smartphone Hardware Manufacturers Are Dead 
  2. Samsung Will Be Ready To Do That Fruit Thing ... - BoomBustBlog Mar 7, 2013 - applecutsabreandriod3d Two and a half years ago I declared in my mobile computing wars series that Google would commoditize the mobi...
  3. Apple Gets Sliced and Diced As Google Enjoys Fruits Of Long Jul 25, 2012 - First things first, those who still believe Apple can walk on water are setting themselves up for a big one. I haven't received so much flak abou...
  4. Blackberries, Apples & Fruit Borne Successitis May 27, 2013 - Blackberries, Apples & Fruit Borne Successitis - The Problem With the original trajectory of the original vision, which was to make the thing an 

I queried in the very recent past, "Have We Reached "Peak Premium Smartphone"? Google is commoditizing the entire portable computer space. They can do this because they benefit regardless, as long as the masses are moved to the cloud. See
  1. Android Now Outselling iOS? Explaining the Game of Chess That Google Plays in the Smart Phone Space

Proof of this is found in the very moderate, "evolutionary" progression of the Samsung Galaxy Note 3.Being a proponent of these high end Samsung products, there's not a lot that would prompt me to change from my LG Optimus G Pro to the note, and that should make Samsung very nervous. From a functional perspective, Sony, LG and HTC likely have it beat - as well as some Chinese manufacturers. That's pretty quick seeing as Samsung just made it to the top last year. Yes, like Apple, Samsung can ride its consdierablbe brand recogntition for a couple of years, but the end of the day, it will have to continue to innovate. The Galaxy Gear smartwatch is also equally unimpressive. There just doesn't seem to be enough practical innovation or usage argument to warrat a purchase from a high end user such as myself.

The functionality of the Gear smartwatch, like most smartwatches that I've seen seem to be akin to a solution searching for a problem to solve. Contrast this to the truly revolutionary, game changing, paradigm shifting Google Glass and you will get the picture.

Crowdfunding and Investing In Wearable Computers and Google Glass Projects – Table of Contents (click on any link to access)

Introduction to Reggie Middleton and the Contextual Computing Project

Old School vs New School, Wearable Computers Send The Keyboard & Laptop The Way Of The Dodo Bird 4m 42s

How Big Is The Market For Wearable Computers & How Much Money Can Be Made? 5m 26s

Why Focus on Google Glass? 7m 41s

Restaurant Glass? Contextual Computing For The Hospitality Industry 9m 35s

Watch Us Change The Way The World Computes 12m 50s

Glass In The Healthcare Industry 14m 20s

Glass In The Real Estate Industry 27m 43s

Addressing Security & Privacy Issues 31m 29s

What Does Reggie Plan To Do Next 33m 37s

Call To Action for Investors, Operators & Customers: How Can You Get Involved? How Can You Benefit From The Next Big Thing, Today? 34m 29s

Long story short, the only company that is positioned to come out on top of this hardware battle is Google, at least thus far. 

Subscribers, see also... 

Subscribers, download the Q3 2013 valuation reports (click here to subscribe).

The update from two months ago is also of value for those who haven't read it. It turns out that it was quite prescient!

  1. File Icon Apple 1Q2013 update - Pro & Institutional (Technology)
  2. File Icon Apple 1Q2013 update - Retail (Technology)

Related reading...

Wednesday, 17 July 2013 10:50

Options Trading - Using a Risk Reversal on Apple

 What Sell Side Wall Street Doesn't Understand About Apple - It's Not The Leader Of The Post PC World!!!

Published in BoomBustBlog

intel-haswell
The Intel Haswell processor has killed Microsoft's Windows RT before it even grew legs. The only reason to ever opt for a device that runs a slimmed down OS such as Windows RT was the moribund decision between higher performance/larger form factor or longer battery life/smaller form factor. Well, Intel's Haswell chips promise (and deliver, I'm typing on a 2 pound, .68 inch carbon fiber, touch screen notebook right now) to offer full blown i5 and i7 desktop performance in tablets and ultrabooks for 7 to 10 hours at a clip. That promise has been kept. Say goodbye to Windows RT and its ARM architecture. It may have been good to know you, but we will never really find out, will we?

Now, I know the more swift among you are problably saying, "Hey, wait a minute!!!" "If Haswell kills off the ARM powered RT devices, what about all of the other popular ARM devices?

Three years ago, I warned everybodey - Remember, the iPad and Android tablets run on on ARM. As a matter of fact, imagine having an i5 Haswell on a 6 inch smartphone that runs FULL BLOWN windows on a HD+ screen that lasts 9-15 hours on a charge.

I'm writing this on an i5 Haswell Sony Vaio that is lighter, and also as thin, as an iPad. It has my full quite of apps along with a very usable touch screen. To be frank, the iPad now seems like a collosal waster of money.
Of course, the discussion doesn't stop there. Just as Intel was forced to step up its game due to natural market pressures, other companies had to do so as well - only some companies are the aggressive and their market pressures stem from the need to usurp new markets rather than defend old cash cows. Enter, Qualcomm and their new Snapdragon 800 chipset clocked over 2.2 Ghz. This chip finally brings the abilities of desktop computing to a handheld, and does so with promises of 12-15 hour battery lives. Sound familiar? Damn skippy!
It's a fight ladies and gentleman. Which would you choose, a desktop light and long lasting enough to act like a tablet, or a tablet strong and powerful enough to act like a desktop? What do you think happens when Android 5.0 Keylime Pie is loaded on a tablet running a 3.0 Ghz Haswell i7? Yeah, I had the same reaction.

Subscribers, download the Q3 2013 valuation reports (click here to subscribe).

The update from two months ago is also of value for those who haven't read it. It turns out that it was quite prescienct!

See also:

What Sell Side Wall Street Doesn't Understand About Apple - It's Not The Leader Of The Post PC World!!!

 The short call - October 2012, the month of Apple's all-time high and my call to subscribers to short the stock:  Deconstructing The Most Accurate Apple Analysis Ever Made - Share Price, Market Share, Strategy and All

See also:

Microsoft Finally Bought Nokia As I Susp…

Microsoft Finally Bought Nokia As I Suspected, Now Will They Do The Right Thing?

On Tuesday, 15 February 2011 I penned The Nokia/Microsoft Alliance & Android's Commoditization Of The Mobile Computing Platform... In said missive, I apparently foretold the future, to wit: The Nokia/Microsoft Marriage via Force of Android team up is definitely a plus for Nokia despite the appearance that Microsoft ex-management is moving heavily into company. Nokia probably makes some of the best hardware around, but...

Google's Rumored To Bid For NFL Sunday T…

Google's Rumored To Bid For NFL Sunday Ticket Package, Extant Biz Models Beware!

All Things Digital ran a story today concerning Google bidding for the NFL Sunday Ticket package. CNBC hosts discussed the topic as well. James Cramer asserts that Google may charge for the NFL content if it is successfully acquired. My first thought when hearing this was... Not so fast. The AllthingsD article put it interestingly: Here’s a fun combination to ponder: The...

Have We Reached "Peak Premium Smartphone…

Have We Reached

Quartz.com has an interesting set of articles on the topic of the peaking of the smartphone market. Let's start with thier commentary on Samsung, "Yes, Samsung is acutely aware that we’ve reached “peak trophy smartphone” - as excerpted: South Korean electronics giant Samsung reported soaring profits on Friday, but despite the company’s attempts to manage expectations, the results undershot estimates and its stock dropped almost...

iPad Shipments Decline As BoomBustBlog T…

iPad Shipments Decline As BoomBustBlog Time Machine Disrupts The Apple Reality Distortion Field Once Again

Let's keep this short and simple. Up to two years ago, I claimed that Apple's tablet market share will be subsumed by that of Android's, and it's margins will follow suit. If one were to Google this topic, this would be the result: Apple's iPad Is Losing Market Share And Profit ...  Mar 16, 2012 - Apple's iPad Is Losing Market Share And Profit Margin As Apple Hits All...   Call The End Of The Fat Margin...

Read more

Was The Google Purchase of Motorola A Ha…

Was The Google Purchase of Motorola A Hardware Disaster With Overpriced Patents?

I have yet to release my review of Google's most recent quarter earnings results, but thus far I've seen nothing that would materially sway me from the conclusions drawn from the last set of forensic valuations released to subscribers (Google Q2 2013 Update: Valuing Possibly The Most Powerful Co. In The World?). One question that I am getting is "Did...

Published in BoomBustBlog

On Tuesday, 15 February 2011 I penned The Nokia/Microsoft Alliance & Android's Commoditization Of The Mobile Computing Platform... In said missive, I apparently foretold the future, to wit:

The Nokia/Microsoft Marriage via Force of Android team up is definitely a plus for Nokia despite the appearance that Microsoft ex-management is moving heavily into company. Nokia probably makes some of the best hardware around, but there OS game has been lacking for some time. The only real unaddressed issue is that Elop never addressed the real reason why he didn't adopt Android, and the MSFT alliance doesn't address it either. Reference this quote from Endgadget:

Nokia did talk with Google about adopting Android but decided that it "would have difficulty differentiating within that ecosystem" and the "commoditization risk was very high -- prices, profits, everything being pushed down, value being moved out to Google which was concerning to us." Microsoft presented the best option for Nokia to resume the fight in the high end smarpthone segment."
 
Elop goes further, recognizing what I have been saying for about a year now, and that isGoogle/Android is at the forefront of the mobile computing wars - Nokia: 'Our first priority is beating Android. Again, I query, how is Elop going to do that if he is afraid to commoditize the platform though. Android is commoditizing the whole smartphone space, not just the low end.

If anything, the pressure on the high end is heavier. Look at the Evo and Samsung Galaxy series phones and how they are so much more capable than the iPhone for the same price. Then you have the next gen of phones available next month, ex. the Atrix and LG 1080p, 3D, dual core and quad core phones. If you haven't seen this tech, I strongly suggest you read , it's impressive. This tech is moving lightning fast and the price points aren't budging, although the margins are collapsing in this fast moving space.

As you can see, it was easy to see HTC margins collapsing 3 years ago while it was actually in its heyday. HTC is not the only one either. Samsung and Apple are suffering the same fate, simply reference Have We Reached "Peak Premium Smartphone"?

How is Elop going to address this by using Windows OS? He has to do more than just charge more, he has to produce better product at competitive prices, which keep getting lower. Elop will have to license the Widows OS, which is an expense, one that he would bear to nearly the same extent if he used Android. I feel he mistakenly looks at this as Google commoditizing the Android platform, in lieu of the more reasonable perspective of Google commoditizing the entire portable computer space. They can do this because they benefit regardless, as long as the masses are moved to the cloud. See

    1. Android Now Outselling iOS? Explaining the Game of Chess That Google Plays in the Smart Phone Space

Long story short, the only company that is positioned to come out on top of this hardware battle is Google, at least thus far. But that begs the question, what if one of the other big boys catches on? On Thursday, 25 October 2012 I penned Microsoft Is Doing What The "Has Been Giants Of Yesteryear" Were Afraid To Do, Make A Radical Change BEFORE ITS TOO LATE!, to wit:

Roughly 3 years ago in my "mobile computing wars" series, I foretold of The Creatively Destructive Pace of Technology Innovation and the Paradigm Shift known as the Mobile Computing Wars! In particular, I warned of the benefits to the consumer and pitfalls to the potential losers of the battle between Apple, Microsoft and Google, reference There Is Another Paradigm Shift Coming in Technology and Media: Apple, Microsoft and Google Know its Winner Takes All. By the way, by Q1 2010, it was already evident to BoomBustBloggers that Research In Motion was a goner - ). While the bulk of my opinion and analysis was directed between the upcoming heated battle between Apple and Google (The Mobile Computing and Content Wars: Part 2, the Google Response to the Paradigm Shift and An Introduction to How Apple Apple Will Compete With the Google/Android Onslaught) which was accurately called, I also appeared to be the lone gunman in warning that Microsoft is not even close to being out of the race just yet - . This was early 2010. Well, nearly 3 years later, we have MSFT doing what IBM, LOTUS, HP, DELL, and a wide variety of other tech companies simply didn't have the balls to do. What is that, you ask? They risked cannibalizing their cash cow revenues and kicking their lazy, unmotivated (despite declining margins and market share, via ass whoopin's from Google and Apple) OEM's in the nuts, forcing either an exponential growth via a pheonix-like rebirth style wake-up call or a collapse from atrophy.

You see, although Microsoft doesn't get much mobile respect these days (and for good reason), their Windows mobile platform is quite capable. After securing the full purchase of Nokia's handset business and licensing of its patents, MSFT is actually well positioned to do some damage in the space if it truly has the balls to do what it takes. Before I go on, let's take a look at the weapon of choice that I would use...

Review: Stellar camera makes Nokia Lumia 1020 first Windows phone worth loving 

In less than a month, the Lumia 1020 has become this reviewer’s go-to smartphone for taking shots of everything from family to friends to practices.

It's the 41-pixel camera that makes the Lumia 1020 competitive as a point-and-shoot and phone all rolled into one.

NOKIA

It's the 41-pixel camera that makes the Lumia 1020 competitive as a point-and-shoot and phone all rolled into one.

The best camera is always the one you have with you. And these days, the camera you have with you can be one of the best cameras you've ever used, too.

That's the key selling point for the Nokia Lumia 1020, the first Windows phone that's actually worth loving. It runs on the same Windows Mobile OS that Microsoft has been pushing for the last few years — the sometimes clever, sometimes annoying software that is still searching for its place in an Apple-vs.-Android world.

But never mind that.

It's the hardware that makes the Lumia 1020 competitive. To be more specific, it's the camera, all 41 megapixels of it. It's a potent point-and-shoot and a decent phone all rolled into one, and in this era of Twitpic, that's something that draws attention.

Read more: http://www.nydailynews.com/life-style/review-nokia-lumia-1020-stellar-camera-article-1.1444253#ixzz2dx1jI7ux

So, what happens if you take that hardware, it's competent but not necessarily Android-dominating OS, and embue it with the two things that 90% of smart phone consumers use and want, but don't have available on their smartphones? What is that, you ask? Well, I'm talking about fully capable Microsoft Office and X-Box gaming! Integrate full, usable, uncrippled Office suite and the full port of XBox gaming and media on this Nokia handset with just a tad larger screen with no premium in pricing and you start attracting power users such as myself to the table. When people like me sit down and eat, we often bring our family, friends, readers, followers and clients. That's how Android did it!

The caveat is... In order for Microsoft to accomplish this they will have to eat margin compression in the short to medium term - and big time. Of course, anyone paying attention knows MSFT will eat this dish best served cold anyway, it's just a matter of who serves it to them. Either they do it themselves and leave room for expanded revenues to compensate, or they let Google's Android force feed them at the compression table. The decision is theirs, I suggest they choose wisely...

Subscribers, see also... 

 

Published in BoomBustBlog

As I said in 2010, 2011, 2012 and this year, the less than free Android business model is killin 'em - Apple in particular. On Friday, 02 September 2011 I posted Google's Android Now Leads In Market Share, Growth Rate and Potential Buyer Preference. I made it clear that Apple's slowing of Google's growth was paramount to their continued success. I take it they didn't get that memo. Earlier this year I posted "Is Tim Cook Cooked? Market Share vs Profit Margin, part 2 - Follow What I Do, Not What I Say!" and it went something like this:

Tim Cook was in the media yesterday weighing in on market share. It's as if he is in a delirium, that is if you believe his words, which I don't. He states that for Apple, quality is more important than quantity (or something of that sort). As per Endgadget:

Apple's head honcho Tim Cook is chatting up Android's growth explosion, and it turns out he's not flustered. "Do I look at that? Of course, I don't have my head stuck in the sand," said Cook." But for us, winning has never been about having the most." Instead, he stands by the old Apple line of quality versus quantity. "Arguably, we make the best PC, but we don't make the most," he added. "We made the best music player, and we wound up making the most -- but we didn't initially."

Mr. Cook is ignoring his own ex-boss's words. For those who didn't read my piece yesterday, "Blackberries, Apples & Fruit Borne Successitis - The Problem With Excess Profits Is Hubristic Management Tends To Take Eyes Off The Prize!!!", I quote:

What ruined Apple was not growth … They got very greedy … Instead of following the original trajectory of the original vision, which was to make the thing an appliance and get this out there to as many people as possible … they went for profits. They made outlandish profits for about four years. What this cost them was their future. What they should have been doing is making rational profits and going for market share.

You see, my post yesterday clearly showed that the financial metrics, over time and in handset companies, heavily favor market share over initial profit margin. As a matter of fact, I demonstrated that as market share decreases margins drop commensurately, or in other words "Quantity is quality in a fast moving, technologically dynamic market!"

In early 2010 I warned on Blackberry (then RIMM), with market share loss to Android being the prime determinant... . I put significant data out in the public domain to illustrate my point and put explicit price points out for subscribers, ie. RIM Smart Phone Market Share, RIP? Was I right?

Blackberry market share vs margin correlation analysisBlackberry market share vs margin correlation analysis

The has been the case with IBM, Nokia, Dell, HTC, Apple, Blackberry, etc. Mr. Cook, take the advice of Mr. Jobs if you don't wish to follow Mr. Middleton. I actually do believe that Cook understands these dynamics and is just putting on a dog and pony show for the media but his corporate actions don't bear this out. I strongly suggest they start spending that $174B cash horde on something other than massaging hedge funds.

Fastforward to today and reference this IDC press release:

FRAMINGHAM, Mass. August 7, 2013 – Despite beating Wall Street expectations in terms of shipment volumes, Apple's share in the worldwide smartphone operating system market posted a year-over-year decline during the second quarter of 2013 (2Q13). Meanwhile, Android and Windows Phone both managed slight increases during the same period. According to the International Data Corporation (IDCWorldwide Quarterly Mobile Phone Tracker, vendors shipped a total of 236.4 million smartphones in 2Q13, up 51.3% from the 156.2 million units shipped in 2Q12. Second quarter shipments grew 9.3% when compared to the 216.3 million units shipped in 1Q13.

"The iOS decline in the second quarter aligns with the cyclicality of iPhone," says Ramon Llamas, Research Manager with IDC's Mobile Phone team. "Without a new product launch since the debut of the iPhone 5 nearly a year ago, Apple’s market share was vulnerable to product launches from the competition. But with a new iPhone and revamped iOS coming out later this year, Apple is well-positioned to re-capture market share."

"Last quarter we witnessed Windows Phone shipments surpassing BlackBerry and the trend has continued into the second quarter," said Ryan Reith, Program Manager with IDC's Mobility Tracker Programs. "Nokia has clearly been the driving force behind the Windows Phone platform and we expect that to continue. However, as more and more vendors enter the smartphone market using the Android platform, we expect Windows Phone to become a more attractive differentiator in this very competitive market segment."

Smartphone Operating System Highlights

Android maintained its leadership position, with strong contributions from Samsung and its Galaxy S4. Not to be overlooked were LG and Chinese vendors Huawei, Lenovo, and ZTE, which each recorded double-digit shipment volumes in the millions. Combined, these vendors accounted for 62.5% of all Android-powered smartphone shipments during the quarter. Still, the remaining vendors within the Android ecosystem should not be overlooked, as many have developed a strong local presence within key developing markets.

...and this was exactly as predicted in Samsung Will Be Ready To Do That Fruit Thing ... and Smartphone Hardware Manufacturers Are Dead ...

iOS finished the quarter as the clear number 2 operating system, showing that, even without new product launches, demand remains strong. Moreover, Apple added new mobile operators to its camp, boosting short-term volumes and cementing long-term end-user relationships. What remains to be seen is how the new iOS 7 will be received once it reaches the market later this year, as much of the look and feel of the user interface has been revamped.

Windows Phone posted the largest year-over-year increase among the top five smartphone platforms, and in the process reinforced its position as the number 3 smartphone operating system. Driving this result was Nokia, which released two new smartphones and grew its presence at multiple mobile operators. But beyond Nokia, Windows Phone remained a secondary option for other vendors, many of which have concentrated on Android. By comparison, Nokia accounted for 81.6% of all Windows Phone smartphone shipments during 2Q13.

BlackBerry saw its market share decline during the quarter, reaching levels not seen in the history of IDC's Mobile Phone Tracker. However, BlackBerry has shown steady progress since the launch of its BB 10 platform, which has grown to three models, additional mobile operators, and a greater presence within its total volumes. It is still early days for the platform, however, and BlackBerry will need time and resources to evangelize more end users.

My opinion on Blackberry hasn't changed for 3 years... See Blackberries, Apples & Fruit Borne Successitis and BoomBustBlog Research Performs a RIM Job!

 

Top Smartphone Operating Systems, Shipments, and Market Share, 2013 Q3 (Units in Millions) 

Operating System

2Q13 Unit Shipments

2Q13 Market Share

2Q12 Unit Shipments

2Q12 Market Share

Year-over-Year Change

Android

187.4

79.3%

108

69.1%

73.5%

iOS

31.2

13.2%

26

16.6%

20.0%

Windows Phone

8.7

3.7%

4.9

3.1%

77.6%

BlackBerry OS

6.8

2.9%

7.7

4.9%

-11.7%

Linux

1.8

0.8%

2.8

1.8%

-35.7%

Symbian

0.5

0.2%

6.5

4.2%

-92.3%

Others

N/A

0.0%

0.3

0.2%

-100.0%

Total

236.4

100.0%

156.2

100.0%

51.3%


Source: IDC Worldwide Mobile Phone Tracker, August 7, 2013

This chart is intended for public use in online news articles and social media. Instructions on how to embed this graphic are available by clicking here.

Top Android Smartphone Vendors, Shipments, and Market Share, 2013 Q3 (Units in Millions) 

Vendor

2Q13 Unit Shipments

2Q13 Market Share

2Q12 Unit Shipments

2Q12 Market Share

Year-over-Year Change

Samsung

73.3

39.1%

48

44.4%

52.7%

LG

12.1

6.5%

5.8

5.4%

108.6%

Lenovo

11.4

6.1%

4.9

4.5%

132.7%

Huawei

10.2

5.4%

6.5

6.0%

56.9%

ZTE

10.2

5.4%

6.4

5.9%

59.4%

Others

70.2

37.5%

36.4

33.7%

92.9%

Total

187.4

100.0%

108.0

100.0%

73.5%

Source: IDC Worldwide Mobile Phone Tracker, August 7, 2013

Top Windows Phone Smartphone Vendors, Shipments, and Market Share, 2013 Q3 (Units in Millions) 

Vendor

2Q13 Unit Shipments

2Q13 Market Share

2Q12 Unit Shipments

2Q13 Market Share

Year-over-Year Change

Nokia

7.1

81.6%

4.1

83.7%

73.2%

Samsung

1.0

11.5%

0.3

6.1%

233.3%

HTC

0.4

4.6%

0.4

8.2%

0.0%

Huawei

0.2

2.3%

0.0

0.0%

N/A

Others

0.0

0.0%

0.1

2.0%

-100.0%

Total

8.7

100.0%

4.9

100.0%

77.6%

Source: IDC Worldwide Mobile Phone Tracker, August 7, 2013

Note: Data are preliminary and subject to change. Vendor shipments are branded shipments and exclude OEM sales for all vendors.

So, does Mr. Cook's lack of adherence to Steve Jobs wisdom portend a potentially uber-successful company misunderstood by the markets (meaning time to buy stock) or is this the beginning of the end of an iconic corporate era?

I refer my subscribers to the research documents below for the answers... 

Subscribers, download the Q3 2013 valuation reports (click here to subscribe).

The update from two months ago is also of value for those who haven't read it. It turns out that it was quite prescienct!

For Google...

Subscribers, click the following links for my updated price targets on Google (click here to subscribe) and read  Google Q2 2013 Update: Valuing Possibly The Most Powerful Co. In The World?:

The biggest risks to these price points are:

  1. A market that's being levitated by central bank magicians running short on magic spells...
  2. Regulatory pressure, which I feel is quite material and inevitable, but will not be a major factor in the near term.

Related links...

Was The Google Purchase of Motorola A Hardware Disaster With Overpriced Patents?

See also:

What Sell Side Wall Street Doesn't Understand About Apple - It's Not The Leader Of The Post PC World!!!

 The short call - October 2012, the month of Apple's all-time high and my call to subscribers to short the stock:  Deconstructing The Most Accurate Apple Analysis Ever Made - Share Price, Market Share, Strategy and All

Published in BoomBustBlog

Google has launched its first, conceived from scatch, phone - the Moto X. It was rumored to be priced between $200 to $250. This would have been a game changer for it meant that its competitors (who are also its business partners) would have had to slice thier margins to compete. As it turned out, the Moto X branded phones are priced at $199 on contract, ie. the same price as all of the other high end phones. The big problem with this is that the Moto X has middling specs as well as middling benchmark scores. That's a tad bit disappointing for us techie/nerds.

But then, I actually looked at the device and the business model around it. To beign with, Google/Motorola has focused on software rather than hardware. This is, in part, what Samsung has tried to do but Samsung is several generations behind Google Android, despite being able to piggyback off of Android functionality. By bringing the fight to the software cloud, Google can make drastic usability changes, some profound and some actually rather ubiquitous - simply not properly marketed.

A good example is reliance on Google Now, what Siri would look like if it actually worked. Ironically, this is probably the Moto X's killer app/feature. Google Now is by far my favorite mobile assistant. The catch is you can use it on any phone that runs Android 4.04 or higher - which is most phones. The difference with the Moto X is that it's always listening, and now you can use it without touching your phone. Even if your phone screen is off, once the command is given (video examples show "Ok Google Now") the Moto X will activate and offer the info you're looking for - which can be quite wide and varied. Android algorithms apparently learn your voice, so (theoretically) only a really good impersonator could activate your phone with voice.

Google has kept the device and the battery small, as well as the processor. This keeps costs down (ie. margins up), but more importantly left room for software innovations to shine without hardware overhead. Examples? The wake from sleep feature allows users to glance at the phone to get pertinent information without the phone fully powering up. If you look at most people commuting, walking, or just standing still, they glance at their phones very often. It's not as if this glance conveys tomes of information and besteller novels. By leaving the AMOLED screen dark and illuminating a small section to convey pertinent timely info such as the time, notifications, etc., significant power is saved (the screen is the signle biggest battery hog) while convenience and user experience is simultaneously increased. 

The choice of screens show that Google is aiming for the mainstream and not the bleeding edge. Although I prefer a 1080p screen for resolution, it drains the battery much faster than a 720p screen. I notice the difference clearly, but most people wouldn't, although they would notice the 40% difference in battery life.

Camera performance is increased, while costs are maintained, reference Moto X camera specs leak, 10MP stills and 1080p@ 60 fps video 

According to Taylor Wimberly, former editor for Android and Me, the Moto X will feature a 10MP Clear Pixel camera with a pixel size of 1.4 microns. This means the pixels will be larger than those on the Galaxy S4 sensor (1.1µm), but smaller than HTC One's (2µm). The bigger pixels, combined with the Clear Pixel technology should go a long way towards improving the low-light performance.

The Motorola Moto X camera is said to be capable of recording 1080p videos at 60 frames per second - a first for a smartphone. The camcorder will use pixel binning, combining information from 4 pixels to reduce noise and provide clearer videos.

Finally, the Moto X will pack three microphones and will be capable of recording 3D audio.

60 fps 1080p video is piercing professional video quality. This is coupled with an intuitive interface that uses the phones sensors to trigger and fire the app versus actual tactile manipulation, resulting in faster picture taking and more contextual use - all with the leading camera specs.

Here's more on this topic Here's a hint Ultra HD 4000 x 2000 pixels is the highest video specification available for consumer media products. Sony, Pioneer and Samsung have just released TVs that can display this stuff, starting at over $60k when first released.

The Moto X’s camera actually supports Ultra HD (you just can’t use it)

Motorola is counting on three things to make the Moto X a success: Google Now, multiple colors, and its Clear Pixel camera, and now some extra details about the latter have emerged thanks to manufacturer OmniVision. The new OV10820 [pdf link] sensor may not have a snappy name, but it’s a mighty capable chip, in fact able to capture 4k2k Ultra HD video.

moto_x_hands-on_sg_18

That’s assuming the rest of the device is up to the challenge, of course, which right now the Moto X is not. The new Motorola is in fact limited to 1080p HD video capture – which it can do with both its front and rear cameras, no less.

On paper, though, the OmniVision sensor is capable of a whole lot more. It can record up to 3840 x 2160 resolution video at 30fps, or up to 1920 x 1080 at up to 60fps, both at a native 16:9 widescreen aspect-ratio.

The sensor itself – described as RGB Clear (RGBC) – includes a fourth color filter for better low-light performance, which Motorola claims improves things by up to 75-percent on the Moto X.

... There are indications that the 10.5-megapixel sensor is only the start of things, too; the OV660 is in fact capable of handling up to 20-megapixel RGBC sensors, in addition to a secondary, front-facing RGBC sensor.

That could mean the same sort of low-light performance for your selfies in future iterations of the Moto X, though we’d be more interested in the potential of recording Ultra HD footage from a smartphone. Late last month, hints of Ultra HD support were spotted in Android 4.3 code, while long-standing rumors have suggested that the upcoming Sony “Honami” will support video recording at that resolution.

That is very serious for a small smartphone, and even more seriosu considering Motorola is keeping component costs down, thus working on increasing margins. I believe Google will do what Apple should have done, and that is it will create fatter margins and then commences to compress them themselves, in lieu of waiting for a competitor or new comer to do it for them. If so, expect these prices to either drop very, very quickly or expect this relatively new and apparently demanded technology to increase dramatically over a very short period of time - or worse for Samsung/Apple/Nokia/HTC,  both will occur simultanesouly. Expect the smartphone race to heat up substantially in just a few weeks. Samsung and Apple are going to have to pull some pretty big rabbits out of their asses! 

The customs order features are a unique edge. It remains to be seen how well this will work in the smartphone field, but then it again its awhat made Dell what it was!

What should we expect next? Well, for one it appears as if Google is taking the Moto X very, very seriously. How seriously? Let's count the ways...

2013 google io rumor roundup motorola nexus x

 Google is launching the Moto X on ALL major carriers simultanesouly, with no major skinning to the OS. That's right, damn near stock Android on every major outlet in the most lucrative cell phone markets - with direct access through Google Play Store. Sans the playstore, the only other OEM to do this was Samsung with the Galaxy S4, and you see how that turned out. In addition, Google is about to spend half of Apple’s annual marketing budget promoting a single phone...

Google's Moto X advertising budget will be up to half a billion dollars, or half as much as the $1 billion Apple spent advertising ALL of its products in 2012. Of course, the current Android handset leader Samsung's marketing budget topped out at $4 billion in 2012There's no big mystery as to why Samsung came out on top, eh?

Samsung’s advertising budget makes other tech companies look stingy.Asymco

Quoted from the quartz.com article linked above:

There is some industry precedent for getting ahead by spending heavily on advertising. Some have argued that Samsung’s dominance of Android smartphones and its market share victories against Apple are due almost entirely to Samsung’s massive advertising budget. While Apple failed to maintain its advertising spend as a percentage of revenue on its mobile devices—essentially coasting on existing brand recognition—Samsung ramped up its ad budget to more than 15% of sales.

Samsung’s spending on advertising goes up every quarter to keep pace with revenue.Asymco

Similarly, Google’s half-billion dollar advertising campaign could threaten Apple, but it’s more likely to threaten Samsung, which until now has been the market share leader in Android smartphones. Consumers will benefit as Google begins to compete directly with the companies that made Android so popular—so long as they can see through the massive fog of marketing that’s about to roll their way.

BoomBustBloggers knew this was coming as early as last year, reference Thoughts on Glass, Fashion, Fads, Moto X and Samsung's Phenomenal Yet Brief Trip To The Top

as well as:

Subscribers, click the following links for my updated price targets on Google (click here to subscribe) and read  Google Q2 2013 Update: Valuing Possibly The Most Powerful Co. In The World?:

The biggest risks to these price points are:

  1. A market that's being levitated by central bank magicians running short on magic spells...
  2. Regulatory pressure, which I feel is quite material and inevitable, but will not be a major factor in the near term.

Related links...

Was The Google Purchase of Motorola A Hardware Disaster With Overpriced Patents?

Published in BoomBustBlog

Facebook Recommendations