Category: Market

Market data & competition.

The Android and iOS pincer movement

Nearly all the data on smartphone shipments is now available for the second quarter 2011. Some fragments are still not public, including ZTE and Huawei (and any others) shipments. We also have estimates for the various platforms including an estimate for Windows Phone and Bada (though not for WebOS).

This allows the following chart:

Using the traditional color scheme which separates “integrated” from “modular” vendors, the chart shows overall volume growth and how the volumes are split among vendors.

The market grew at about 73% y/y and 50% compounded over three years and 9% sequentially. The y/y growth rates for individual vendors were: Continue reading “The Android and iOS pincer movement”

The Samsung hedge: Estimating Bada for Q2 and hence Samsung's Android shipments

The number of Bada phones shipped last quarter is not public, however some assumptions can be made that lead to plausible estimates.

First, we know that Samsung shipped about 3.2 million smartphones in Q2 2010 and that total included Bada and Android (and perhaps even some Windows Mobile).

Second, we know that there were about 19.9 million smartphones in Q2 2011.

Third, Canalys published an estimate that Bada grew by 355% y/y.

So if we knew how many Bada phones shipped in Q2 2010 we could derive the current Bada shipments and also realize how many of the nearly 20 million smartphones from Samsung were actually Android.

The clue is in an estimate from December last year Continue reading “The Samsung hedge: Estimating Bada for Q2 and hence Samsung's Android shipments”

The Verizon small bang

As Verizon has reported iPhone sales for one and a half quarters, it’s time to try to discern the impact on the product. There were several hypotheses floating around prior to the “big bang” of Verizon.

Some assumed that there would be a large migration away from AT&T and that AT&T iPhone sales would slump. Others that there would be no Verizon iPhones volumes at all because there were so many Android users already converted. There were also suggestions that the iPhone would explode in growth with two major operators carrying it.

What really happened?

The first chart shows historic AT&T activation with Verizon activations added. It also shows sales to “none of the above”, namely non-US sales of iPhones[1].

AT&T iPhone activations show no significant impact from Verizon and Verizon itself shows a modest start to sales[2]. What did not happen is an exodus from AT&T. We also did not see a rejection of the iPhone by Verizon customers long exposed to anti-iPhone Droid advertising. We also did not see a considerable impact of Verizon on growth.

Verizon did contribute (4.5 million Verizon iPhone users is nothing to sneeze at)  but the contribution was to a degree that was nowhere near a big bang.

That was because the real big bang was from the rest of the world. The same data in the first chart is shown below as a stacked area chart and a share chart. Had Verizon not come on board the business would still have grown year-on-year over 100% (and sequentially). Continue reading “The Verizon small bang”

Apple has moved on

When Apple changed its name from Apple Computer to Apple Inc. they signaled that their business has moved on. We can say it’s to devices or to mobile computing or to the Post-PC era. To understand that this is not a shift driven only by wishful thinking we can plot the change in volumes for the platform-based devices Apple sells.

The stack of products is shown in an increasing level of mobility. At the bottom is the non-portable desktop Mac, above are Mac portables (laptops) followed by the iPad, iPhone and iPod touch. The mobile computers Apple sells are explosively more popular (and important).

To gauge importance consider the following chart which shows the unit values above multiplied by the average price they are able to obtain for a picture of the sales mix. Continue reading “Apple has moved on”

How we do all this will never be the same

In a new ad for the iPad Apple once again makes the case that the tablet is a good substitute for a PC in a number of use cases (and permits some new ones.)

We’ll never stop sharing our memories. Or getting lost in a good book. We’ll always cook dinner and cheer for our favorite team. We’ll still go to meetings, make home movies, and learn new things. But how we do all this will never be the same.

This belief that the iPad “cannibalizes” the PC is a powerful concept. The growth of the PC has certainly been affected. But has the Mac’s growth also been affected?

Tim Cook seems to think so. In the earnings call he said:

In terms of cannibalization, we do believe that some customers chose to purchase an iPad instead of the new Mac during the quarter, but we also believe that even more customers chose to purchase an iPad over Windows PC. And as I’ve said before, there’s a lot more of the Windows PC business to cannibalize than the Mac.

If we look at the behavior of Mac vs. iPad, the following chart may be useful:

Continue reading “How we do all this will never be the same”

Apple's share price (adjusted for earnings and growth) reaches new low

After Apple reported earnings growth of 125% its share price dropped to a P/E of about 15. This reduction in valuation is part of a trend I’ve written about for over a year so there were no surprises. The first chart below shows how the stock has traded between increasingly lowered P/E bands.

As the second chart shows, not only is the P/E ratio declining, but when seen against the trailing twelve months (TTM) average growth rate, the P/E/TTM ratio is now at the lowest since the great recession (around 0.17–a value of 1.0 is a rule of thumb for “fair value” in a growth stock).

Those values include cash. Excluding cash, the P/E as of Friday was 12.4. On a forward basis (my estimate–which has shown be be conservative lately) the P/E is around 7.

Perhaps some day in the future Continue reading “Apple's share price (adjusted for earnings and growth) reaches new low”

A new way to value Apple

Almost all valuation models for Apple assume it’s a hardware company. The modeling algorithm for hardware is simple:

  • For each year in near future
    • For each product line
      • Compute contribution
  • Determine company value by summing contributions and multiplying by a P/E ratio

The major difficulty is in predicting the growth of each product line. This is difficult because buyers can be fickle. Companies employs all sorts of tools in order to secure repeat customers but if switching costs are low, the company can crash in value. For this reason, analysts pick various ways to predict device  sales. Some choose to index each product on production (channel checks), demand (customer surveys,)  or even on a top-down share of total (market research on growth of whole market and assumptions of share).

Although simple and convenient, this model does not probably match the way Apple is managed. The company does not build hardware products to sell and forget. It builds platforms which are best seen as sources of recurring revenues. Users are incentivized to continue buying devices. iCloud, iTunes and other Apple properties are expressly designed to that goal–and they are not cheap to run. So, the company must see the world through a different set of lenses than the default model shown above.

To think about the business like they do, we need to put the data through a similar set of lenses. I began with a modest proposal last month to value each user as a source of recurring revenue. Now it’s time to expand on this method.

The following chart shows the recurring revenues per user by product and the current and possible future size of user bases.[2]

Revenues/yr/user are bars with the left axis and the User bases are various colored circles indexed with the right axis.

The assumptions that went into the data are as follows:

  1. Device life span is as per previous article linked above
  2. User base growth for 1 year is: Mac 20%, iPhone 80%, iTunes 10%, iPod 30%, iPad 100%
  3. User base growth for 2nd and 3rd years (recurring): Mac 20%, iPhone 50%, iTunes 10%, iPod 20%, iPad 80%.
  4. The Revenue per user is assumed constant

Note that the user base growth figures are lower than the product growth levels seen historically. Obviously, the model is highly sensitive to these growth assumptions so they need to be scrutinized and tested rigorously.

Nevertheless, as a straw-man proposal,  the recurring revenues for all these products[1] is shown in the following chart:

Once the income is estimated, we can take that value and assume a profit margin (net) and then multiply the earnings by a multiple. Using a 20% net margin and 12x P/E yields the following chart.

(I added an assumed level of cash in green.)

This model would imply that the company today could be valued at $208 billion on the basis of its installed base alone. That value would be about $323 billion in one year and $620 billion in three years. Dividing by the number of shares outstanding (935m this year increasing at 2% a year) yields a share price of $222, $339 and $629 by mid 2014.

These values can be considered “lower bounds” on valuation since they assume income from previously secured customers. The speculative part of investment would be based on what the future bases will look like (so, for example, if one believes these assumptions, the $629 figure could be considered a target to be discounted to today).

—

Notes:

  1. Excludes Software, Peripherals, non-iOS devices, and any other service revenue.
  2. Compare this char to social media companies (MIT Technology Review)

Is the tablet computer a new PC or post-PC?

Steve Ballmer stated and Andy Lees confirmed that Microsoft views iPad and other tablets as “just PCs”. From a market measurement point of view Canalys agrees. IDC and Gartner don’t, calling the new devices “media tablets.”

Before deciding whether tablets belong with PCs in market metrics, it would be interesting to look at what the data shows. When seen as a combined market, the focus should be on platforms. The following chart shows the four main PC+tablet platform volumes since late 2008 [1].

The second chart shows the same data as share of total market: Continue reading “Is the tablet computer a new PC or post-PC?”

iTunes app total downloads (finally) overtook song downloads

It was only a few weeks ago (at WWDC) that we had an update on the app store growth rates. The data was presented here.

One of the data points from the event was that iTunes hit 15 billion song downloads. Last week we heard that iTunes also hit 15 billion app downloads.

The milestones were reached within less than a month so it’s a fairly safe assumption that apps have overtaken songs. I had originally guessed that the cross-over would take place at 13 billion at the end of 2010.

The actual performance is shown below (total downloads indexed to same starting date):

The 15 billion app threshold was passed within exactly three years while the 15 billion song threshold was passed in six years and 10 months. Shown on the actual time scale, the chart looks as follows: Continue reading “iTunes app total downloads (finally) overtook song downloads”