Pages

Live blogging Feed

Tuesday, May 29, 2012

The PC market overview for Q1

The PC market overview for Q1:
In terms of units Windows-based computers made up 78% of all PCs sold in Q1. That was an increase from the 74% in the previous quarter but a decline from 90% a year ago. OS X based computers were about 3.7%, a decline in share both q/q and y/y, something the company attributed to a transition quarter.
The following chart shows the composition of vendor volumes with tablet and traditional form factor computers included:

iOS computers (i.e iPad) were 11% of the market, declining from 13% last quarter but increasing from Q1 ’11′s 4.2% share. Apple reported that the iPad was not at supply/demand balance and thus could have sold more units.
Amazon’s shipments went down significantly though sell-through was perhaps twice sell-in due to inventory build-up during the previous quarter. Overall, about 5 million Amazon Fire tablets were sold since the product’s launch.
The third significant tablet vendor was Samsung, which sold about 1.6 million tablets, down sequentially but up y/y. Other Android tablets may have shipped another 5 million units.
Overall, Apple remained the top vendor with 14.6% share, followed by HP with 14.1% and Lenovo in third at 10.7%. Dell just barely managed to beat Acer with 9% vs. 8.9%.
The impact of the tablet (aka iPad) market is being described in the response to a significant earnings miss by Dell:
Sterne Agee, which admits it probably shouldn’t have upgraded DELL from underperform last week, says it’s notable that the PC maker acknowledged competition from Apple and Google for the first time as part of Tuesday’s dour F1Q report and forecast. Meanwhile, Mizuho calls DELL a “show-me-story for now” in cutting it to neutral and cutting its price target 25% to $15. And ISI snarks “everything is bigger in Texas–including the misses.” It adds while the company “is making the right business-model changes…results will remain ‘chained’ for years (not quarters) to commodity desktops/notebooks, which comprise over half of sales.”
- Dow Jones Newswires (Kevin Kingsbury)
And so, two years later, the impact of the iPad is becoming abundantly clear, even to the incumbents.  The resistance and denial was profound. Even on this blog, the agitation and anxiety when the subject of the iPad as disruptor came up was palpable.
Perhaps that is the greatest testament to the disruptive potential of a product.

Monday, May 14, 2012

The Android Income Statement

The Android Income Statement:
This is a continuation of the “Android Economics” series of posts. It deals with how revenues and costs are categorized for Android.
The following diagram shows an approximate representation of what Android’s “Income Statement”[1] would look like.

I’ll discuss the assumptions that are built into the model as I go along. I’ll begin at the upper left and move toward the lower right in the discussion.
The first thing to note is that sales from Google’s (formerly known as Android Marketplace) Play are not registered as revenues. This is because Google, like Apple, treats itself as an agent. Agency means that the revenues don’t “belong” to the agent but get passed on through to the primary beneficiaries. In the case of Play, Google passes 70% to developers (or content owners) and then distributes on average 25% to network operators (or carriers).
I emphasize on average because there are many cases where Play transactions are not handled by or don’t pass through operator billing systems. In those cases where operators are involved, it’s possible that they capture more than 25%. It’s not uncommon for operator billing to capture 45% of a transaction’s value. The reason for this is that there is significant collection risk on billing–far more risk than on credit cards. It would also imply that on some transactions Google may be paying out more than it receives.
This means that on average about 5% of Play content sales to be booked as revenues for Android.
This 5% ends up a quite a small amount if overall app sales are small. We don’t know the exact amount but anecdotal evidence from developers seems to indicate that they receive far more revenues from ad sales than from direct app income. Hence the size of the Android app sales is overall, modest. My estimate is that in 2011 there were about $330 million in gross app sales through the Android market. (Google estimated its sales to be 76 million for 2010 half way through that year.)
The bulk of revenues are therefore from other sources: Search, AdSense and AdMob. I’m modeling that overall revenues are based on a “revenue per device in use” multiplied by the number of devices in use. Google has publicly stated that they are targeting $10/device/yr. in revenues. This is probably ambitious as the amount was nearly that much in early 2010 but the number of devices bought by emerging market consumers exploded. As they are not actively targeted by Google’s primary customers (especially in China), the average revenue per phone is likely to be much lower. I estimated $6.5 on average for 2011.
However, even if we use $6.5 per phone per year, the total revenues are quite strong since there were likely more than 215 million users at year end[2]. That results in a total revenue base of $967 billion for 2011. Removing the app revenues results in about $958 billion from Search and AdSense and AdMob.
How to allocate revenues to these three businesses is mostly guesswork. I used a split of about one third to AdMob, 10% to AdSense and the rest to Search. If we assume this split then the next step is to consider how to allocate costs to these sources of revenue.
As discussed in the introduction to this series, the primary costs of sales for Search and AdSense are network operators and OEMs or phone vendors. They are the primary “channel” which ensure the flow of search terms to Google. As Google also explains, the channel receives revenue share–so-called traffic acquisition costs (TAC).
I used an overall allocation of 39% for TAC. Crucially, this includes the payments to developers for AdMob traffic. The rule of thumb I used was:
  • Network operators get 20% of Search
  • Developers get 50% of AdMob
  • OEMs get the rest (of the TAC)
The resulting split is shown in the column above with the “Cost of Sales” at the bottom. There are also additional operations costs which are negligible.
After this 39% TAC (revenue sharing), Google needs to pay its operating expenses. This includes R&D, Marketing, Sales and Legal costs for the Android division (including AdMob). You can see the approximate values in the column labeled “Operating Expenses”. This operating cost amounts to about 27% of sales, with R&D at 14% and Marketing at 9%. These rather high fixed costs make sense as there is a significant development work underway for Android.
Finally, after these costs are allocated, the remainder is the contribution of the division. This comes to about 34% of revenues which is called the operating margin. Google has to attach depreciation from data centers and other costs as well as taxes before placing this into earnings.
Considering the agency structure, the overall cost structure of Android looks like this:

When playing with the assumptions, it becomes clear that the model is most sensitive to the revenue per device and total devices in use. The profitability is entirely dependent on those figures as variable costs are a percent of sales and fixed costs are limited by talent constraints.
For example, if revenues per device drop to $4.5/yr then the operating margin drops to 38%.
Now we can calculate some of the more interesting figures. For example:
  • Android OEMs receive $0.76 on average per device per year
  • Android Operators receive $1.07 on average per device per year (including Play)
  • Android Developers, as a group, receive $1.94 per device per year (including Play and AdMob)
  • Google receives a contribution of $2.75 per device per year from Android
Again, these figures are very sensitive to the revenue per device (currently assumed to be $6.5).
Because of the number of devices involved, these cash flows are an important part of the value network of mobile computing. The next step will be to assess how they affect the incentives, alignments and competitive stance of various platforms vying for a seat at the table of the future of information.

Notes:
  1. An income statement shows the sources of revenues and the costs associated with those revenues. It also shows the fixed costs (or costs which are independent of revenues so they don’t go up or down if revenues change). Finally it shows the operating income which is called contribution if it’s a division within a company. This contribution is still subject to taxes and depreciation before it’s recorded as earnings.
  2. I’m using Android installed base estimated based on daily activation rates as published by Google. I’ve discussed these estimates here. I’m using year-end estimates but subtracting retirements based on a two year device life.

Thursday, May 03, 2012

Forward Concepts - CELLULAR HANDSET & TABLET CHIP MARKETS '12


Excellent report from Forward Concepts

CELLULAR HANDSET & TABLET CHIP MARKETS '12


Global cellular handset shipments grew 6.5% in 2011 to 1.51 billion units compared with 12% growth in 2010. We predict a stronger 2012 unit growth of 11%. Smartphones, however, will continue to do even better, growing a predicted 17% to the 502 million unit level this year.
The report provides extensive forecasts for all cellular handset and cellular-enabled tablets and virtually all chips that enable them (excluding memory) through 2016.  This is likely the most extensive market analysis of cellular handsets, tablets, and chips available.  While others concentrate on tracking the top 6 handset companies, we track the top 30.
Among the top 10 cellphone vendors, Nokia, Samsung and Apple topped 2011 unit shipments while Chinese suppliers Huawei, ZTE and TCL also moved into the top ten. In revenue, however, Apple led over Samsung and Nokia. We expect Samsung to pass Nokia in smartphone shipments in 2012, taking the 2nd position behind Apple.
Cellular Handset Revenue by Category

This extensive (654-page) market study covers cellular handsets, tablets and the integrated circuits and major semiconductor components that enable those devices and profiles the major vendors of each.   Moreover, the study provides forecasts through 2016 for annual unit shipments, average selling price and revenue for handsets, tablets and individual chip components.

Although Baseband chips of several types constitute the largest non-memory cellphone chip market at $15.9 billion for 2011, There are other multi-billion-dollar cellphone chip markets, including $5.5 billion for power management units, $3.7 billion for RF transceivers, $3.6 billion for RF power amplifiers, $2.9 billion for image sensors, $2.8 billion for standalone application processors, and $2.7 billion for touch-screen controllers
Standalone Application Processors

Other cellular chips in the billion-dollar-plus class include those for Wi-Fi, Bluetooth, and fast-growing MEMS & sensors. Of course, GPS and AM/FM radio are also significant peripheral chips. Moreover, the wireless peripheral "combo" radio devices consisting of Wi-Fi, FM/AM, Bluetooth, GPS and (perhaps soon) NFC together now constitute a growing share of the cellphone component market.
The market for cellular peripheral chips presents new opportunities for startups and smaller companies that can be more profitable than the major core markets like basebands and application processors.
With this valuable resource, you will be better equipped to understand the market and new business opportunities, to know your potential customers and to be better informed about your competitors.  We believe that there is no other cellular handset, tablet or chip market study available that has the breadth or depth of coverage of this one.
You are invited to scan the 20-page table of contents to get an idea of the full extent of this valuable study and all of the companies and components covered. Our informed views on the global market and trends will be of great benefit in your long-term planning.

Wednesday, May 02, 2012

400 million phones per quarter and everything’s topsy turvy

400 million phones per quarter and everything’s topsy turvy:
Sony Ericsson is no more. The company remains but the brand is gone. Now the phones it makes will be sold under the Sony name. Unfortunately, that means we no longer get reports from the company on its volumes, profitability and sales. The units will be part of “Other” from now on.
That vendor’s data disappears as did HTC’s and Samsung’s earlier reporting. Bit by bit, vendors are withdrawing information. RIM stopped reporting its average selling prices some time ago, Motorola may disappear completely and they already stopped reporting tablet sales.
This makes the picture of the market fuzzier each quarter. We have to rely more and more on analysts who publish estimates. I try to pick from the available data the best assumptions but the errors are undoubtedly increasing. Here are the charts showing unit volumes in terms of absolute, share and ranking.



As I wrote previously, Samsung has overtaken Nokia which lost the top spot in unit shipment ranking, a spot it held for 14 years.
Of all the participants, only three brands enjoyed growth this last quarter: Apple, Samsung and ZTE. ZTE, like Apple, is noteworthy for its late entry. The others are in a mess: Motorola -4%, Nokia -24%, RIM -26%, HTC -29%, LG -44% in terms of unit growth y/y. This, while the market managed a modest gain.
It still find it fascinating that such a large market, selling 400 million units every quarter can exhibit such rapid change in participant ranking.




Web Browser Market Share, April 2012 Update

Web Browser Market Share, April 2012 Update: