Monday, March 11, 2013

Long-term shrinking. As the smartphone market quickly drifts away from some vendors, it's time to find a life raft or risk going down with the shift.

Nobody likes the smell of rotting animal flesh on their front porch.

KEY TRENDS: China, business development, services, long-term thinking

One of the more interesting – and impressive – business development stories of 2012 was Maersk's decision to slowly shift away from the shipping business (FT story) and into more profitable sectors such as oil services. At first read, a story about Maersk moving away from shipping is like hearing that IKEA will be getting out of the plywood-based furniture business. But for Maersk, this is an acknowledgement of a real and perhaps uncomfortable longer-term trend: although shipping volumes have been increasing, rising fuel costs and increased competition have been driving down freight rates and margins.

Does the theme music here sound familiar? Despite growth in global volumes, increasing competition is driving down average-selling prices and profit margins. Smartphones? Yes. So, at what point do vendors decide to sail for greener shores, where ever those may be?

When looking for larger market trends, take a good look back before looking forward: think long-term in reverse. Tangent lines can be very misleading. So, let's look back about six years to an era when the smartphone market was still in its youth. Nokia had greater than 50% of the smartphone market in early 2007 (and Symbian greater than 70%). To get an idea how powerful a position Nokia had then, take Samsung's current market share and Apple's current market share, add them up and then add a few extra points. That's what Nokia had. This shows the significant contrast to the current-day situation.

The market changes are amazing and nearly unprecedented across industries: not one of the top-five smartphone vendors from early 2007 (Nokia, RIM, Sharp, Motorola, and Palm) remains in the top five today, and some of those don't even remain. In addition, only 3.5 or 4.5 of the top-ten volume vendors of that era still remain in the top ten: Samsung (which dominates the market now but had less than 3% in early 2007), Sony (was "Sony Ericsson" thus the 0.5), HTC, RIM and possibly Nokia.

What should be highlighted here is the number of Chinese vendors who have entered the top-ten. Six years ago there were none. In fact, only two years ago there were none. But last quarter there were at least three (Huawei, ZTE, Lenovo) and it looks likely several more China-based Android vendors will join them in the coming quarters to satiate both local and global demand as the feature-phone market makes way for low-cost smartphones.

The market presence which some big smartphone brands had enjoyed has been shrinking at an accelerating pace and there are few solid or even delusional reasons to believe things will reverse. So now it's vital for those vendors to think forward five or six years and picture what the market could look like given current trends discussed above.

If such fading smartphone players aren't thinking about the possibility that they might not be in the business at all in five or six years from now, then they quite simply aren't thinking. For some vendors, it's time for reality to sink in: ignore long-term market trends and you'll go away.

Canalys' smartphone stats from 2006 highlights dramatic market changes.

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