Interesting analysis from Merrill Lynch about smart phones which puts some of the discussions about smart phones into a market context.
- Merrill believes Apple, Google, Sybase, Qualcomm, Mediatek and Broadcom will create most of the value for the Smart phone market with Apple and Qualcomm being the big winners as they understand the value creation process best and are best positioned to benefit from the growth of smart phones.
- Samsung, LG, HTC, SEMC and Motorola with a significant manufacturing focus will suffer as hardware and software elements of smart phones are decoupled.
- ALSO RANS?
- RIM, Nokia and Palm have good history but poor strategy and consumer propositions may affect their long term ability to compete even if their stocks are potentially undervalued in the short term.
“Bank of America Merrill Lynch global tech research team has taken a deep look at various aspects of how value is created around smartphones, from devices to mobile payments, carriers, semiconductors and applications. We discuss the changes we have already started to notice and the ones that will almost surely come. The term itself may soon disappear, as smartphone revenue will likely overtake regular phones in 2010, with Nokia expecting smartphones to account for 60-65% of industry revenue in 2011. Our note discusses the following topics:
- How value is created and the way it is distributed among the various groups of players. We discuss the genius of Apple and Google, Microsoft’s challenges, RIM’s defiance, and Nokia’s poor execution.
- Risks embedded in Android’s efforts to decouple software from hardware; emerging similarities to the PC ecosystem and how this could impact value distribution.
- Is there a market for a stand alone operating system? The value of Microsoft in a market that thrives for applications and services.
- Semiconductors: apps processor wars: TI’s OMAP vs. Qualcomm and integrated vs. discrete solutions; Intel’s targeted entry to the high end segment.
- Understanding the uniqueness of smartphone-based mCommerce and discussing Google’s strategy to address the new opportunities. Sizing the market and the potential contribution to Google’s earnings.
- The carriers’ perspective. Compare the cost of subsidizing smartphones to their benefits; quantifying the contribution to ARPU and subscriber additions.
- Lastly, we look at the market for mobile payments, and look at the differences between the potential in mature vs. emerging markets.
Conclusion: 2010 will be a defining year
We believe that many of the above trends will take their almost final shape, or at least will turn much clearer in 2010. We believe Apple, Google, Sybase, Qualcomm, Mediatek and Broadcom will create most of the value from the proliferation of smartphones. We think it is not a surprise, that like in the PC value chain, the list is mostly composed of software/app and semiconductor vendors. On the other side of the market, we note likely challenges for the traditional handset vendors LG, Samsung, Motorola, Sony Ericsson and HTC to create and sustain value over time.
We have doubts, but we are not losing hope, on the ability of Nokia, RIM and Palm to grow/sustain current positions in the consumer smartphone market. On one hand, they failed so far to put together the necessary ingredients for an attractive offering. However, the stocks are cheap and they all have notable advantages and could recover if manage to improve the solution set/scale, respectively.