Smartphone market set for renewal in 2013

Friday 4 January 2013 | 11:59 CET | Market Commentary
After a transition year in 2012, are we set for a redefining of the smartphone and tablet market in 2013? Will Apple and Samsung remain the most important smartphone makers and iOS and Android the biggest operating systems? Or will a third player emerge in one or both segments, such as emerging Chinese smartphone makers, Microsoft with its Windows (Phone) 8 operating system or a comeback by RIM or Nokia?

A total 169.2 million smartphones were sold worldwide in the third quarter, out of a total mobile market of 428 million phones, according to Gartner. In this hyper-dynamic market, where manufacturers are taking competition all the way to the courtroom, the polarisation was never so evident as in the past year.  

While Samsung and Apple were making off with all the profits, the problems at Nokia and Research In Motion only continued. Between these two extremes, companies such as HTC, Sony Mobile (the former Sony Ericsson), LG, as well as Huawei and ZTE tried to maintain their positions.  

In addition, there were the platform owners Google and Microsoft, which continued to enhance their hardware plans. Google’s Android rose in Q3 to a global market share of 75 percent, while Microsoft's Windows Phone took only a few percentage points. Samsung and Apple’s iPhone (iOS) together took 85 percent of the smartphone market. 

The leaders board had only three names in 2012: Apple (and iOS), Samsung and Google’s OS Android. While the rest of the market was left in the background, this doesn't mean they were standing still. For many of these smaller players, 2012 was a transition year, laying the groundwork for a fresh attack on the market in 2013. Many went through restructurings, cleaned up their portfolios, increased payments to developers and boosted their marketing budgets. Nevertheless, it will be difficult to steal the crown from Apple or Samsung.  

Samsung is reportedly targeting sales of 500 million phones this year, of which 350 million smartphones. The Galaxy S IV, the latest model in the successful high-end series of the Korean manufacturer, will likely make a big contribution to this goal, although Samsung has yet to confirm the launch of the phone. Samsung doubled its profits in the third quarter thanks to the strong growth at its mobile division. Revenues at the mobile division rose 67 percent to KRW 29.92 trillion, and operating profit roughly doubled to KRW 5.63 trillion.  

Apple also appears unlikely to let go of its grip on the market. The company sold in its last quarter 26.9 million iPhones, 58 percent more than a year earlier. Revenues reached USD 36 billion in the three months to 29 September, for a profit of USD 8.2 billion. The latest iPhone, the 5s, is rumoured to launch in the spring. Apple will need to do everything it can in the coming year to continue surprising.  

The only problem for Samsung could be a clear victory for Apple in the ongoing series of lawsuits over banning each other's smartphones and tablets. Apple won in August around USD 1 billion in damages in a jury verdict (an appeal is pending), strengthening its position versus Samsung. Samsung has since withdrawn some claims against Apple in Europe. Samsung could still face the damages and a ban on the popular ranges Galaxy S, Galaxy Tab and Galaxy Note. 

Nokia is still adrift in a sea of uncertainty after almost two years ago agreeing to work with Microsoft. The much-needed success of the Lumia smartphones running Windows Phone has so far proven elusive, and the Finnish company will need to look hard at its strategy this year to go forward. The situation could still worsen for Nokia, which last year sold its hard office in Espoo, Finland to help strengthen its balance sheet. 

Revenues at Nokia’s division Devices & Services fell 34 percent year-on-year in the third quarter of 2012 to EUR 3.5 billion. Of the total, EUR 976 million came from smartphones and EUR 2.3 billion from traditional handsets. The volume reached 82.9 million handsets, of which 6.3 million were smartphones and 2.9 million of those Lumias. The Lumia series has yet to gain traction in the market, although the well-received Lumia 920 could set a precedent for the new year. It is still a small basis to work from though.  

In the mean time, Microsoft is searching desperately to boost the scale of the Windows market, which with Nokia has remained at just a few percentage points of market share. The launch partners for Windows Phone 8, which hit the market in October last year, also included Samsung, HTC, Huawei and ZTE. Microsoft also launched last year its own tablet, the Surface, showing its first serious intent to make its own mobile hardware, even if the software company didn't paint it this way to the market.  

Similar to Microsoft, Google is working on the possibilities for its own hardware. To date it has been aided by its trusted Android partners, including Samsung, HTC and LG, which have supplied smartphone models for the Nexus series. Google was able to grow Android sales significantly in 2012 thanks to the help of a large number of hardware partners. Especially Samsung, and also HTC, played a big role, while smaller, local players also embraced the open-source operating system. The result: 1.3 million Android devices activated per day, and demand for Android handsets, from the low to high end, appears far from diminishing.  

At the same time, Google is strengthening its control over Android and reportedly has plans to launch its own smartphone through recently acquired Motorola, named the X Phone. This would come in addition to the Nexus series that the internet company developed with its hardware partners. The question is how far will platform owners go in 2013 in developing their own hardware and how the existing hardware partners will react.  

Similar to Nokia, RIM is having a difficult time. The Canada-based BlackBerry maker is losing ground not only on the consumer market, but also in the business segment, where the roots of its success were first developed. RIM has not released a new phone for around a year, in anticipation of the launch of the new OS BlackBerry 10, which is expected to be available initially on two handsets. The launch is planned for the end of January. 

In its last quarter RIM shipped 6.9 million BlackBerry smartphones and 255,000 PlayBook tablets, versus 7.4 million and 130,000 respectively in the previous period. Operating cash flow remained strong at USD 950 million, bringing the cash position to USD 2.9 billion. Revenues fell 47 percent year-on-year and 5 percent sequentially to USD 2.9 billion. RIM still managed a small profit of USD 9 million. CEO Thorsten Heins will need to prove this year that BlackBerry is the smartphone of choice for both consumers and business users. Given how much is riding on the new OS, a disaster cannot be ruled out for the company. Heins, who took up office a year ago, will have his own position under scrutiny.  

Between the winners and losers there is a lot of wide open ground where players such as HTC, Sony Mobile, LG, Huawei and ZTE can make their mark. ZTE and Huawei are in the ascendant, while HTC, LG and Sony Mobile need to find new momentum. They will try to compete this year with better cameras, longer battery life, LTE support for faster mobile internet, as well as faster processors and rumoured flexible screens. The same as last year, manufacturers will also be working on new form factors, including every possible inch size for screens. While the platforms owners are busy testing the market with their own hardware, smartphone makers are also likely to target the further integration of services with their products. 

The final question: will all these efforts result in attractive smartphones that also in terms of branding restore a balance in the smartphone market?

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