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Make or break time for manufacturers?

Samantha Tomaszczyk
August 30, 2013

With former market leaders struggling to recoup some spectacular losses and plummeting market share, Samantha Tomaszczyk asks whether 2013 will be the year in which we see big-name casualties fall

This year marked the 40th anniversary of the first ever mobile phone call – an event that kicked off a revolution in the way people communicated.

Back then the pioneers were the likes of Motorola, with customers requiring a strong arm and fat wallet to have one. But it wasn’t until the mid-1990s and the advent of prepay that mobile phones began to be a common sight on the high street – with wider choice of affordable devices suddenly filtering the market. It was here that the battle of the handset manufacturers began.

At the time, the key players in the market (from a UK perspective at least) were the likes of Nokia, Mitsubishi, Panasonic and Ericsson.

Today, only Nokia remains in its original form, with Ericsson becoming Sony Ericsson and then Sony again, Panasonic anonymous despite attempts to revive its fortunes and Mitsubishi exiting mobile entirely.

Since then new entrants HTC, once an OEM (with the O2 XDA range, for example), LG (with its Chocolate handset), Motorola (the V3) and BlackBerry have all had their day in the sun – at times dominating the market. Even Sendo and Alcatel were a common fixture in people’s hands from a lower end perspective at least. But as time has gone on, each has fallen upon difficult times failing to keep up with the market trends, resting on past glories and, let’s be truthful, failing to compete in a market now dominated by Samsung and Apple.

Financially, the situation is bleak. HTC, for example, has now posted consecutive losses over the last six quarters, totalling more than £200 million. Nokia, while now showing improvement, has endured catastrophic performances, shedding thousands of employees amid concerns it may not survive. And it is not alone in these concerns.

Analysts we spoke to believe it’s fast becoming ‘make or break’ for some of those manufacturers mentioned, and they genuinely believe one could even exit the market entirely. Ovum senior analyst for devices and platforms Nick Dillon told Mobile News: “The mobile market is almost akin to the fashion market – it is a very fickle market. If you look at how Nokia and BlackBerry have fallen out of fashion – and how quick their downfalls have been – it could happen to anyone with a bad handset.”

Who is most at risk?

At the start of the year, Mobile News asked then BlackBerry UK and Ireland managing director Rob Orr what his vision for the company was for 2013. His honest response was that it was the “most significant” year in BlackBerry’s 29-year history.

Struggling as it was to maintain its market share, and plagued by numerous delays to the launch of its new operating system, few could disagree.

According to intelligence firm IDC, BlackBerry’s share of the global smartphone market in 2012 was 4.6 per cent, with shipments totalling 32.5 million.

Using this as a benchmark for a struggling manufacturer, two others are at risk. HTC’s performance for 2012 was almost identical to BlackBerry’s, with the Taiwanese manufacturer shipping 32.6 million devices to also take 4.6 per cent of the smartphone market. Nokia performed only slightly better, capturing 4.9 per cent of the market with 35.1 million units shipped.

By comparison, Samsung held 30.3 per cent of the market in 2012 with shipments of 215.8 million and Apple 19.1 per cent of the market with 135.9 million.

Figures show 2012 was the year both manufacturer’s cemented their dominance – IDC found Samsung and Apple experienced 129.1 per cent and 46.9 per cent year-on-year increases in shipments respectively. This was at the expense of BlackBerry, HTC and Nokia, who all lost market share last year.

Dillon believes HTC is “at most risk” and should be put on “close watch”, primarily because the manufacturer stripped down its new portfolio to a single handset – the HTC One – placing a lot of pressure on it to succeed.

Informa principal analyst Malik Saadi agreed with Dillon that HTC is at most risk of takeover, mainly as it does not have the capacity to create a large range of devices, but also because the company faces a challenge in strengthening its marketing and improving its image – which we’ll come to.

“I agree with the term ‘make or break’ when it comes to HTC,” Saadi said.

No room for error

HTC unveiled its flagship ‘One’ handset on February 19 to positive reactions from industry analysts and UK operators. Informa research analyst Julian Jest, for example, said the handset rivals other high-end smartphones on the market, and Three, O2, Vodafone and EE all announced they would be selling the device.

However, HTC was forced to delay the sale of the device from March 15 (a day after the Samsung Galaxy S4 was unveiled) to March 29, citing a shortage of camera components. The delay meant the device went on sale in only three markets out of an intended 80 by the end of the first quarter of 2013. In comparison, Samsung’s Galaxy S4 was available in 155 countries by the end of April.

The setback contributed to HTC’s worst ever quarterly results, as net income fell by 98 per cent year on year to NT$85 million (£1.8 million). It’s latest results, which benefited from HTC One sales, show some improvement, with profits falling by 83 per cent year on year to NT$1.25 billion (£2.7 million). BlackBerry also experienced supply constraints with the launch of its ‘make or break’ device, the Z10 smartphone.

After numerous delays that saw the launch of its new operating system, BlackBerry 10, moved from 2012 to this year, the Canadian manufacturer finally unveiled two devices – the touchscreen Z10 and QWERTY Q10 – on January 30.

The Z10 went on sale the following day through UK operators and retailers, with Phones 4U announcing it had seen “exceptional sales” of the device.

A further two smartphones based on the BlackBerry 10 platform, both with QWERTY keypads, have followed. The high-end Q10 was released in April, while the mid-range Q5 hit shelves early last month.

BlackBerry’s financial results for the three months to June 1 show it sold 6.8 million smartphones in the quarter, including around 2.72 million BlackBerry 10 devices. BlackBerry’s subscriber base fell by four million, from 76 million in the previous quarter, to 72 million.

However, after profits rose $80 million to $94 million in the previous quarter, it reported a loss of $84 million in the most recent three month period.

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