Tuesday, 31 May 2011 12:29

Google’s Excellent Execution On The Android Platform Goads S.E. Asian Manufacturers Into Low Margin Innovation War!

A BoomBustBlog reader forwarded me the following news item this morning:

9:44 AM Android's (GOOG) lead over Apple's (AAPL) iOS may have stopped growing, as new Nielsen figures indicate a "stalemate" in the U.S. smartphone battle among Google, Apple and RIM (RIMM). After shooting to the top spot in under a year, Google holds steady at 36% of the market; Apple and RIM remain at 26% and 23% respectively.

I strongly suggest my readers look a bit deeper into this than is suggested by this news clip. Android is set to explode. The numbers above are lagged and count smartphones only. In addition, Apple's market share benefited greatly from its launch on the Verizon Network, the 2nd largest in the US. That is something that cannot be repeated (although it will also benefit to  a much lesser degree from distribution through Sprint and T-mobile as well). Meanwhile, the Samsung Galaxy IIs running Android is actually outselling the iPhone globally, isn't even for sale yet in N. America which is the deepest, richest smartphone market. It set sales records in Korea where it was launched selling over 1 million phones in 30 days or less.

Then there are the tablets, where Honeycomb is coming into its own. The Samsung Tab 10.1 is in significant demand and has yet to launch, and the Asus Transformer sells out within hours of any retailer getting supply. I have the Asus and it blows the pant off of my iPad and offers a very, very serious cost/benefit challenge to all of my wintel wares (see the video comparisons here - I Absolutely Dare Anyone To Read This And Still Not Consider The Probability (Not Possibility) Of Apple Suffering From Margin Compression). Have no doubt, the power of the Wintel Duopoly is materially threatened by Android. The Android hardware platform is due to quadruple in performance by the 4th quarter! In addition, the hardware vendors - after being freed from trying to develop an OS/ecosystem or shoehorn Windows into ultraportable devices - have truly started innovating with form factors.

Reference the extremely unique and innovative form factors that have been, and are about to be released - form factors which literally solve real world usability issues:

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The labor efficiencies gained through the S.E.A. labor force combined with the margin efficiencies and dearth of development effort needed to produce a competant product (due to Android's open source, "less than free" model) combine to make a very, very potent and formidable brew in the portable computing space. Asus, the company that totally disrupted and up-ended the computing world with the introduction of the razor-thin margin netbook computer form factor is back again to do the same things to the tablet and smartphone market. Samsung, LG  and HTC will will not take this lying down, for they all have similar capabilities in terms of margin management, with Samsung possessing significant manufacturing capabilities. Oh yeah, even little Asus has managed to jump on the Apple marketing bandwagon. You see, no lead lasts forever. Asus is not there yet in terms of marketing, but their products are bustin' ass and they just launched their first Honeycomb tablet (the Transformer, above) last month. Check out what's on tap for next quarter, then come back and talk to me about innovation and disruption...

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Here goes 3D screens, the thinnest capacitive stylus tech in the industry (that innovation thing) and full telephony, both through the tablet itself or through the telephony-only handset accessory (there goes that innovation thing again).

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I have used Asus products for about 6 years or so now. They make good, solid products and you can buy them for a few hundred dollars (as in under $400). There is no compromise at those price points and even price points up to twice as much. The partnership with Google's Android is a killer combination as it allows each company to focus on its core comepetencies.  A good example is the Transformer, which by itself is a much better performing and practical product than the iPad 2 see:

[youtube KPOj4QBHNAY]

Despite the fact his launched last month, Asus is already launching two other tablets and a smartphone before the 4th quarter end, in time for the holidays. In addition, Android is slated for two major software upgrades in this same time period (HC 3.1 and IceCream Sandwich, which melds tablet and smartphone OS UIs). This is a ridiculously rapid pace and is impossible for Apple to keep up with as it struggles to launch the iPhone 4G (3 months late) and prep the iPad 3. In addition, Samsung, whose Tab 10.1 tablet is the thinnest and lightest in the industry (as well as their smartphone boasting nearly the same claim), has already announced updates to both the tablet and the phone for the 2nd quarter of 2012 that will more than double performance, most likely due to their proprietary Exygins? chip which is less power hungry yet faster than anything currently on the market. No, they will not be selling this to Apple (they make the chips for Apple's iPad and iPhones).

Glasses free, HD 3D phones are now everywhere HT, LG and even Sony who happens to have a dual 8MP 3D camera mechanism:

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Kyocera Echo morphing screen form factor

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Then there is Google's first mover advantage in mobile payment systems using the Android OS. This is a very, very big milestone and is something that will be very hard for competitors to match or even mitigate - particularly the pricing structure and platform infrastructure, both of which Google is uniquely well suited to capitalize on.

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The possibilities here should not even need to be mentioned. It is rumored that the Yankees tickets may be available at 50% off if purchased through your phone's wallet. Promotions, geo-location sales, social media to the extreme, Groupon to the nth degree.  Thus far, no other competing service is even off the ground. Innovation is coming in booms.

Professional and institutional subscribers should upgrade the kick-off stage of the Google Valuation Model to factor in these launches (63 pg Google Forensic Valuation, to plug in your own assumptions see Google Valuation Model (pro and institutional)) as mobile ad, cloud and subscription revenues look as if they may actually approach the "kick off" stage - not there yet but it does look promising...

For those who don't subscribe, you can peruse my mobile technology archive in reverse chronological order here.

Last modified on Monday, 11 July 2011 09:36


  • Comment Link alo Vera Wednesday, 01 June 2011 09:58 posted by alo Vera

    Thanks Reggie. Not looking for buy or sell opinion, just an overview of the current situation and how it will effect AAPL's prospects. I will check back next week.

  • Comment Link Reggie Middleton Wednesday, 01 June 2011 07:53 posted by Reggie Middleton

    Apple's price is probably going to shoot up since they are announcing a new OS and cloud services next week. The extent of the capabilities of these initiatives will dictate whether I modify my stance on their prospects in competing with Google's business model and offerings.

  • Comment Link Reggie Middleton Wednesday, 01 June 2011 07:51 posted by Reggie Middleton

    I don't give buy or sell opinion on the free blog.

  • Comment Link alo Vera Tuesday, 31 May 2011 23:07 posted by alo Vera

    Good day Reggie. AAPL is up $10.. since that last entry you made warning the Android is going to eat their lunch. Would this be a good time to start a short position? Thanks in advance.

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