Oct 27

The Smartphone Wars: Sprint Doubles Down on Dumb

One of my regular commenters points out an interesting article in the Wall Street Journal,
Sprint Could Yet Strike Out With iPhone. “SPQR” interprets it as follows:

The article states that Sprint’s cost to run the iPhone is $15.5 billion over four years. Unclear to me what that “cost” means from the article. The iPhone won’t have a positive impact on Sprint operating income before depreciation and amortization until 2015. The article then implies that outside of that cost are the costs of upgrades to network to support iPhone data useage on its unlimited plans, resulting in a “cash shortfall of up to $5 billion” through 2013. Again, vague what that exactly consists of. Sprint says that the estimated wholesale cost of the iPhone is 40% or $200 more than other smartphones.

If Apple is running margins that essentially suck the profit out of the wireless phone telcos and into its own pockets, then there is another way that dropping market share can rapidly attack Apple’s margins – and that is by removing their leverage against the wireless phone companies

The article is oriented around a reference made by Hesse, CEO of Sprint Nextel, in a earnings call where he made a reference to “Moneyball” about how smart the iPhone is to him. But the article points out, that the Moneyball theory is low wage value players not high wage players, and claims that Hesse got his metaphor backwards.

SPQR is quite right, but to understand the degree of wishful thinking Hesse is exhibiting here you have to bear in mind the huge Damned Fact that drives the behavior of Sprint and other telcos: the real rates of return on carrier cell networks are negative! The carriers are burning capital, all day, every day.

When ROI is negative, you become desperate to drive down costs or pull up margins. Desperation makes CEOs stupid; Hesse is exhibiting that kind of stupidity by placing a bet that even if he shovels most of Sprint’s present profits down down Apple’s throat, the iPhone will push Sprint’s margins up soon enough for the deal to be a net positive in four years.

Meanwhile, in the real world, Android’s U.S. market share is probably passing 50% right about now. I wonder how long it will take for Sprint’s board to realize they’ve been had and fire Hesse’s ass?

Oct 04

The Smartphone Wars: How are the mighty fallen

HP replaces the hapless Leo Apotheker in a manner not very well calculated to reassure anyone that HP has a bright future. Granted, Apotheker’s performance – typified by the now-it’s-dead-oh-maybe-not fumbling around the TouchPad – was dismal. But the new CEO’s first move was to reassure everyone that Apotheker’s cunning plan to turn HP into a low-rent clone of SAP is still on track.

How are the mighty fallen. HP was a great company once. Then they spun out the instruments division to focus on printers and lost their culture of excellence along with it. Now they’re thrashing. Sad.

In other news of the stupid, there’s evidence that Nokia (remember Nokia?) is developing a Linux-based OS for its low-end phones. Yes, that’s right, they dropped Meego/Maemo — which actually worked — only to start an entirely new OS development project.

On a more cheerful note, Samsung is pushing kernel source code out the door. This after hiring the Cyanogen lead. Good stuff; they actually seem to get this open source thing.

From the excellent StackOverflow site, a report with statistics indicating that Android passed iOS in developer mindshare on that site at the beginning of 2011.

And Amazon finally moved; the Kindle Fire is out. G+ points us at the funniest tweet about this.

The business press had already begun to notice that Apple is chasing Android’s tallights. Then Apple announced the iPhone 4S, and it’s a big yawn. iCloud? Me-too voice recognition features? Really, Apple? Is this the best you can do? Gawker has a hilarious post on how overblown the media hype was, but even that fails to convey what a boring, derivative-seeming product the 4S is. How are the mighty fallen.

Aug 31

The Smartphone Wars: Alarums and Mergers

Running a cellphone network is a brutally capital-intensive business with thin profit margins, and subject to heavy regulation. Any economist will tell you that all three of these factors favor size – capital concentration confers a stronger advantage, thin margins can only yield a decent profit at high volume, and larger organizations can better afford the costs of capturing their regulators.

The Washington Post has an interesting graphic on the results in the U.S. wireless-carrier market:

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Aug 25

The Smartphone Wars: Exit Steve Jobs

Steve Jobs resigned as CEO of Apple yesterday, handing the reins to designated successor Tim Cook. It could hardly happen at a more difficult juncture – for though Apple’s cash reserves and quarterly profits are eye-popping, the company faces serious challenges in the near future. Its strategic position rests on premises that are now in serious doubt, and it is on the wrong end of a serious example of what Clayton Christensen has called “disruption from below”.

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Aug 18

The Smartphone Wars: WebOS, we hardly knew ye

The business press is abuzz today with the news that HP is pulling the plug on its WebOS smartphone and tablet lines. This won’t be any huge surprise to people who’ve been following the discussions on Armed & Dangerous; WebOS has looked terminal to us for a long time.

Still…WebOS didn’t suck, technically speaking. It was certainly better constructed than the turd-with-frosting that is WP7. It’s worth taking a moment to reflect on the circumstances of its demise, and what its difficult history tells us about the future.

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Aug 15

The Smartphone Wars: Google Buys Motorola

This morning came the news that Google has agreed to buy Motorola Mobile for $12 billion. I was half-asleep when A&D regular Jay Maynard phoned me with a heads-up, but not surprised for a second; as I told him, I’ve been expecting this for weeks.

We’ll see a lot of silly talk about Google getting direct into the handset business while the dust settles, but make no mistake: this purchase is all about Motorola’s patent portfolio. This is Google telling Apple and Microsoft and Oracle “You want to play silly-buggers with junk patents? Bring it on; we’ll countersue you into oblivion.”

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Aug 07

The Smartphone Wars: 48% and rising

There’s been a lot of talk in the trade press over the last month by people who believe – or want to believe, or want us to think they believe – that Android’s momentum is slowing, and in particular that the multicarrier release of the Apple iPhone was a game-changer that will eventually pull Apple back into the dominant position in smartphones. Most of these talkers have been obvious Apple fanboys; a few have been contrarians, or tired of reporting the same old Android-wins-again stories, or merely linkbaiting.

The last week has not been kind to these people. First, Canalys reported that in a survey of usage in 56 countries, Android has reached 48% market share worldwide. Then the comScore figures on US installed base up to June 2011 came out, and report only 40% share here.

I think comparing these sources is instructive, particularly with the longer-term trends as context. It’s also worth noting a couple of other recent developments that cast doubt on the Apple-comeback scenario.

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Jun 30

The Smartphone Wars: Rumors of demise

I’ve been chronicling RIM’s death spiral, and much more willing than most to call it as a straight-up suicide by bad planning and management, not just a “bad things happen to good companies” episode. Now comes an open letter from inside RIM describing the unforced errors in excruciating detail.

In other news, the trade press has been abuzz for the last week with stories of a dramatic turn in Apple’s smartphone fortunes – Android supposedly stalling out, with significant gains for Apple from the Verizon iPhone. This report now looks like a classic case study in how to (a) lie with statistics, and (b) get the trade press to inflate a non-story into a nine days’ wonder.

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Jun 15

The Smartphone Wars: The invasion begins

For months I’ve been predicting that a flood of ultra-cheap SoC-based Androids is coming at us from China, motivated by the prospect of Third World and BRIC sales volume in the billions and beginning in 3Q2011. The iCube announcement was one harbinger; today we have some others. It’s worth another look at what this trend is going to do to associated markets.

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Jun 07

The Smartphone Wars: The world turned upside down

It’s always a good day when you get to wield the Righteous Cluebat of Reality straight into the teeth of dogmatists and downshouters – and no, I’m not talking about being Andrew Breitbart, though I do like to think I’m at least as capable of upending smug certitudes as he is. Today’s cluebatting concerns two developments that, taken together, put paid to a lot of negative mythology around Android.

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May 27

The Smartphone Wars: HTC rejoins the good guys

Market pressure works. In response to an outcry from customers, HTC has just annnounced that it will return to its policy of shipping handsets with unlocked bootloaders.

This makes me personally happy because I’ve been a fan of HTC handsets since the G-1; I would have had to stop buying and recommending them if they’d stuck to the lockdown. But the larger reason this story is interesting is because of what it signals about ongoing shifts of power in the Android smartphone market – and throughout consumer electronics, as well.

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