Smartphone market continues upswing in Q2

Smartphone market continues upswing in Q2

BI Intelligence

Graph: Global Smartphone Shipments By Vendor

The global smartphone market had its second-largest quarter ever in terms of shipments in Q2 2015. Shipments from all vendors grew 15% year-over-year (YoY) to hit 340.4 million in the quarter, according to estimates from BI Intelligence. That’s up from 295.3 million shipments in the same quarter of 2014.

The only quarter in history to see higher shipments was the closing quarter of 2014, a three-month period that was heavily lifted by holiday sales and heavy adoption of Apple’s iPhone 6 and 6 Plus. Q1 2014 had the third-highest volume of shipments, totaling 340 million.

Here are some highlights from Q2:

• Industry leaders Samsung and Apple maintained their respective No. 1 and 2 spots, though Samsung’s growth was essentially flat compared to a year earlier. Meanwhile Apple’s 47.5 million iPhone shipments in Q2 represented YoY growth of 35%.
• The top Chinese vendors remain a significant piece of the pie but aren’t growing their collective market share. Huawei and Xiaomi were the top Chinese sellers in the quarter and saw YoY growth of 53% and 28%, respectively, but the impact of their improved shipments is being offset by others like Coolpad and ZTE that saw negative growth in the quarter. The top Chinese vendors accounted for 26% of shipments in Q2, down slightly from 27% in the year ago quarter.
• Huawei had a huge quarter, in which shipments reached 31.1 million, up 53% over Q2 2014.
• Lenovo lost its No. 3 spot as its 16.2 million shipments in Q2 were eclipsed by Huawei’s 31.1 million and Xiaomi’s 19.3 million.
• The Other category accounted for 100.2 million smartphone shipments in the quarter, which resulted in YoY growth of 52%. This category has continued to grow its total market share, indicating that the long tail of smartphone vendors outside the top ranking is growing, likely in terms of both number of vendors and overall shipments.
• Global smartphone shipments continue to push feature phones into obsolescence. Growth in the greater mobile device market saw a downturn of -.04% in the quarter according to the IDC. 464.4 million mobile devices (including smartphones) shipped in Q2, with smartphones accounting for ~73% of all mobile devices shipped in the quarter.

Notably, YoY smartphone growth in China slowed in Q1 for the first time in 6 years. This is significant to the market as a whole because China has historically acted as a bellwether for smartphone growth, and a sustained growth decline in that region will result in market-wide deceleration unless other emerging markets pick up enough steam to offset China. These two factors also have significant implications for China’s deep bench of smartphone vendors, whose current and future shipments are largely dependent upon success in China and emerging markets. This hurdle will be particularly hard as booming Apple sales in the country further depress domestic vendors’ growth prospects.

Here’s a look at quarterly smartphone shipments market share over time:

Graph: Global Smartphone Shipments Market Share

And growth of smartphone shipments in the greater market over time:

Graph: Global Smartphone Shipments Growth

Google Loon’s first internet-coverage deal — Mobile dominates Facebook growth — Samsung earnings disappoint

Google Loon’s first internet-coverage deal — Mobile dominates Facebook growth — Samsung earnings disappoint

BI Intelligence 

GOOGLE LOON INKS FIRST LARGE-SCALE DEAL: Sri Lanka will have affordable widespread internet coverage as early as March 2016 thanks to Google’s Project Loon, according to a tweet by Information and Communication Technology Agency’s Muhunthan Canagey. The deal, the first for Project Loon, was completed on July 27, 2015. The balloons are expected to start launching in the country in the next few months.

Google plans to launch 13 balloons equipped with internet broadcasting capabilities to cover airspace over Sri Lanka, a report on phys.org stated. The balloons will provide the entire country with 3G broadband, which is especially scarce in rural areas where mobile broadband providers have struggled to build needed infrastructure. Each of these balloons, or “floating cell towers in the sky,” as GoogleX Project Leader Mike Cassidy put it, is now capable of staying in the air for up to 6 months at a time and beaming internet access to a region roughly the size of Rhode Island.

In Sri Lanka, specifically, network coverage is highly prevalent in cities, however it is scarce in rural regions, where a majority of the population still reside.

• There were just over 606,000 fixed internet connections in the country at the end of 2013, according to the latest stats published by the Board of Investment (BOI) of Sri Lanka.
• In addition, there are five mobile internet companies that provide data coverage to 2.8 million of the 22 million total mobile subscribers in the country. This brings the percentage of mobile users with internet-capable connections to a mere 13%.

Google is not the only company working towards worldwide internet coverage. Facebook is providing internet access in 17 countries through drones, satellites, and lasers as a part of their Internet.org initiative. And OneWeb, partnered with Airbus, has recently stated that they are on route to building a global communications system through satellites, which will provide internet access worldwide by 2019.

While there is a humanitarian aspect to providing internet coverage in underserved regions, these programs also give Google, Facebook, and telecom vendors an opportunity to monetize formerly unconnected mobile phone users through mobile ads and fees from data plans for select services.

MOBILE CONTINUES TO DOMINATE FACEBOOK’S GROWTH: Facebook attributed both its ad revenue and user growth to its increasing mobile presence, in the company’s second quarter earnings report. The social media giant tallied over $3.8 billion in ad revenue this quarter, 76% of which came from mobile ads. A year ago, mobile ad revenue accounted for 62% of total ad revenue. Mobile ad revenue grew to over $2.9 billion, up from $2.4 billion last quarter and rising 74% year-over-year (YoY). Marketers are flocking to mobile ad spots as a larger share of users access the site through mobile devices.

Here are some other key points from the quarterly earnings call:

• Facebook’s monthly active users (MAU) reached 1.49 billion, up from 1.44 billion last quarter, a 13% YoY increase. These users also access the site frequently, as 65% of MAU visit the platform daily.
• A vast majority of Facebook’s users access the platform through mobile devices. Mobile users made up 88% of MAU, growing 23% YoY. Mobile-only users rose 64% YoY.
• Facebook will continue to build up its video ad business. Auto-play and in-feed video ads will drive Facebook’s video ad growth. The social media giant is also looking to boost its own video content through monetization schemes for content producers and through a separate video viewing portal.

Graph: Facebook Revenue

Notably, Facebook may look to build its mobile messenger properties into more robust businesses by the end of the year. MAU on Facebook Messenger and WhatsApp reached 700 million and 800 million, respectively, and are growing at a pace that will likely see each pass the 1 billion MAU mark by the end of 2015. Facebook CEO Mark Zuckerberg has previously stated that the company typically seeks to monetize their products after their user bases surpass 1 billion. Zuckerberg intimated that the company would employ a similar approach with Messenger and WhatsApp.

Facebook has spent the past several quarters growing its Facebook Messenger service in terms of both users and product offerings with the end-goal of eventually monetizing the service. Facebook has already launched peer-to-peer payments on Messenger and earlier this year announced plans to let businesses use the messaging platform to interact with consumers. Both of these moves suggest that Facebook sees Messenger as an opportunity to go after commerce revenues.

Although WhatsApp’s user base is also large and on the cusp of the 1 billion mark, it’s uncertain what approach Facebook will take to earn money off the platform. WhatsApp has so far been a basic messenger service without most of the bells and whistles of larger platforms like LINE and WeChat.

Graph: Facebook Property MAUs

SAMSUNG FALTERS: Samsung’s second-quarter earnings highlight challenges in the wake of lackluster smartphone shipments.

• Smartphone shipments for the South Korean device manufacturer dipped to 73.2 million in the quarter, down from 82.4 million in the previous quarter, according to the IDC. Samsung’s share of all smartphone shipments in the quarter was ~22%, the most recent dip in a downward trend spanning back to Q2 2014.
• Shipments growth declined -11% sequentially and -2% year-over-year (YoY). This is the second time in the company’s recent history that it experienced both sequential and YoY declines. The first was in Q4 2014, when Apple matched Samsung in smartphone shipments for the first time.

Samsung has faced difficulties in the first half of 2015 mainly due to a drop in market share in China and missteps in its own inventory planning for its newest flagship devices. Competitors like Xiaomi and Lenovo, have eaten into the mid- to low-end handset market, with their ultra affordable handsets, while Apple has begun encroaching on the high-end side, where Samsung previously enjoyed the lion’s share of the market.

Graph: Samsung Smartphone Shipments and Market Share

JUNIPER RESEARCH PROJECTS 38 BILLION DEVICES WILL BE CONNECTED BY 2020: The global number of devices connected to the internet will almost triple from 13.4 billion this year to 38.5 billion in 2020, according to new projections from Juniper Research. This estimate includes IoT devices like sensors, connected lights, connected vehicles, and smart meters, as well as PCs, smartphones, tablets, and connected TVs. Juniper’s projections are slightly higher than BI Intelligence’s forecast of 34 billion devices connected to the internet by 2020.

COMPANIES IN THE NEWS

• AT&T is requesting that phone manufacturers turn on the FM device in their phones, a report by The Verge states. The carrier has not given a reason for the request, however, it is thought that it could be receiving ad revenue or music sales through the app NextRadio, which it supports.
• Yahoo has introduced Yahoo Livetext, a messaging app which uses video (minus sound) as well as text, according to their blog. Tests have been run over the past few weeks in places like Hong Kong, Taiwan, and Ireland. It has recently been released in the US, UK, Canada, Germany, and France.
• Android Auto will be added to a majority of new model Volkswagens by 2016. The Google OS is one of a number of operating systems which are being used for the connected cars through the automaker’s App-Connect feature, which allows app integration from Android Auto, Apple’s CarPlay, and MirrorLink. Entry-level models will not be outfitted with App-Connect.

The Chinese smartphone market in Q3 — The impact of an AT&T/DirecTV merger — Enterprises slow to deploy IoT solutions

The Chinese smartphone market in Q3 — The impact of an AT&T/DirecTV merger — Enterprises slow to deploy IoT solutions

BI Intelligence

HIGH-END SMARTPHONES DRIVE CHINESE MARKET IN Q3: All eyes are on China after both Apple and Huawei announced their high-end smartphone sales figures for the first half of this year. Both companies’ strong performance on the high-end suggests that consumers in China are moving away from low-end smartphones. This is notable because low-end sales of smartphone products has typically been how Xiaomi and Lenovo have secured sales in the region. Earlier this year, the head of Huawei’s consumer business group Richard Yu predicted that most low-end vendors from China would disappear from the market due to saturation.

The Chinese market has been volatile recently, with a recent report from IDC suggesting that this may be the first time in six years that the country will see lower smartphone sales growth than the global market as a whole. Despite this, Apple CEO Tim Cook has singled out China as a major sales driver for Apple’s flagship devices the iPhone 6 and 6 Plus, the company’s most expensive smartphones. While China’s smartphone market overall may be stagnating, it’s potential for high-end manufacturers is still significant.

Here are some of the key figures for major mobile companies in the greater China region:

• Apple is leading in China, with a 15% share of smartphone sales in shipments, according to IDC’s first quarter data. Apple CEO Tim Cook has singled out iPhone unit growth in the Greater China region (which is inclusive of Hong Kong and Taiwan) where smartphone shipments rose by 87% from last year’s figures.
• Huawei recently reported 48.2 million smartphone sales in the first half (H1) of this year in China. This is up 39% on last year’s H1 numbers. Over the last three years, Huawei has moved from low-end smartphones into the high-end market. Global shipments of the company’s smartphones priced at $300 or more have increased by 70% in the first half of this year, according to a report by the WSJ. The fact that the company’s premium smartphone segment is growing much faster than its less expensive counterparts is an important indicator of consumer purchasing habits. Huawei’s premium smartphone sales could get a boost in the mid-term if rumors that Google wants Huawei to be the first Chinese collaborator for its Nexus smartphone comes to fruition.
• Xiaomi, which primarily makes quality low-cost smartphones, became one of the world’s most valuable tech startups late last year after raising $1.1 billion. In the first quarter of 2015, Xiaomi was in second place in China with 14% market share, according to the IDC. After seeing the quickest ascent to the top 5 ranking for smartphone manufacturers by shipment volume, it appears the company’s momentum in China may be slowing. Q2 sales of 34.7 million were less than extraordinary. And Huawei’s latest figures suggest that the company could unseat Xiaomi for the second place spot in Q3.
• Samsung’s Chinese sales numbers have been dropping steadily over the past year, with IDC figures placing the tech company’s market share at 9.7% after its shipment volumes decreased by 53% YoY. Samsung’s particularly hard pressed in the Chinese market where consumers who previously flocked to its phablet devices (smartphones with screens that measure 5 inches or greater) prior to the launch of Apple’s large iPhone 6 and 6 Plus are switching to iOS.
• Lenovo, another low-end manufacturer, is in fifth place, and noted a -22.1% Q1 year on year unit growth.

This heightened adoption of premium smartphones is reflective of a greater trend in the smartphone market. In 2014 the mid-tier smartphone category had the smallest share of all smartphone sales. The ultra-cheap and premium ends are growing at opposite sides of the spectrum as emerging markets get mobile access for the first time via cheap devices and developed markets embrace larger and more powerful smartphones.

Graph: 2014 Smartphone Sales Share by Price Tier

FCC LIKELY TO APPROVE MERGER BETWEEN AT&T AND DIRECTV – A $49 billion merger between AT&T and DirecTV has received the go-ahead from Federal Communications Commission (FCC) Chairman Tom Wheeler, and approval from the Justice Department. In approving this merger, the FCC hopes to get AT&T on board with net neutrality. Right now ISPs like AT&T are appealing the FCC’s decision that went through earlier this year.

• The merger, which has been conditionally approved by Wheeler and is expected to be approved by the FCC’s other 4 commissioners, must stay within the guidelines of the bright-lines rules of net neutrality in order to protect competition in the growing online video arena. The bright-line rules prohibit selective data throttling, blocking, and paid prioritization.
• The merger will help AT&T and DirecTV improve their consumer bases where they each have weakness. AT&T will now have the opportunity to increase their pay-TV market share. U-Verse (AT&T’s pay-TV division) has only 5.7 million subscribers, compared with DirecTV’s 20 million US users. DirecTV can leverage AT&T’s internet services to bundle with their pay-TV package. Pay-TV packages are often offered at a loss.
• AT&T will have a greater opportunity to break into the Latin American market, where DirecTV has 18 million subscribers. OTT solutions tend to be less problematic for ISPs in Latin America than they do in the US. This will also likely help AT&T compete against competitors in the mobile telecom market which are working on expanding services across North America.

One particularly notable impact of this merger is that it would create a quadruple-play service option for consumers, allowing them to purchase a bundle of services including mobile phone subscriptions, fixed-line services, internet, and pay-TV. Robust bundle options like these have been growing in popularity among consumers in Europe, and have driven consolidation in the European market among internet service providers, broadcasters, and mobile telecom companies for the past few years. Now such consolidation could be coming to the US.

ENTERPRISES AND GOVERNMENTS SLOW TO DEPLOY IoT SOLUTIONS: A new survey commissioned by Red Hat found that only 12% of enterprise and government IT organizations are in the process of rolling out IoT solutions. The survey included 565 IT decision-makers in a wide range of organizations, including small businesses, local governments, and Fortune 500 companies.

Even though few organizations represented in the survey are launching IoT projects, many of them are in different stages of experimenting with IoT technologies. The survey, taken this past spring, found that 46% of the respondents were evaluating, experimenting, or prototyping IoT solutions. Additionally, 43% of respondents said that IoT technologies are immediately important to their business.

This interest and experimentation shows that enterprises and government agencies are being cautious in launching IoT solutions. These organizations typically lag the consumer market in adoption of new technologies like the IoT because of regulatory and security concerns. We’re seeing this take place in the IoT, where consumer wearables is now the fastest-growing segment. In the long term, BI Intelligence expects the enterprise and government IoT solutions market to surpass the market for consumer solutions in both investment and number of devices.

Graph: Estimated Number of Installed IoT Devices by Sector

COMPANIES IN THE NEWS

• Facebook lost a case in New York that would protect the company from being forced to provide personal information about consumers suspected of committing Social Security fraud. The court found that Facebook must provide the photos, private messages, and other account information of 381 suspects, and that the warrants could only be challenged by the individual users themselves. Numerous internet companies, including Google and Microsoft, argued against the ruling, saying it would set a dangerous precedent for digital privacy rights.
• AT&T will be the first carrier in the US to offer Microsoft’s Surface 3 tablet, which is slated to go on sale tomorrow. The new Surface device has 4G LTE capabilities, and AT&T will be offering several promotional deals for the device.
• Google’s revamped Enterprise Edition of its Google Glass product is foldable, will be more water resistant, and boast a host of improved features like a better processor and longer battery life.

THE TABLET MARKET REPORT: Forecast, market size, and why the enterprise will drive only modest future growth

THE TABLET MARKET REPORT:
Forecast, market size, and why the enterprise will drive only modest future growth

BI Intelligence

View report here.