We serve the single bypass burger, the double bypass burger,
the triple, all the way up to the quadruple bypass burger. That's
two pounds of beef. It's absolutely slathered in lard. It's got
tomatoes, onions, and so many slices of bacon that you can't even
count them. That's what makes the quadruple bypass burger
-- Doctor Jon, The Heart Attack Grill
We like big stuff.
Houses, cars, and food portions are just a few of the things that
are bigger here than in the rest of the world.
Heck, America gave the world the Heart Attack Grill referenced
And the Hummer!
And Hummer cologne!
Yet, the world's most dominant technology company -- the very
American and very minimalist
) -- frowns on the idea of quantity over quality.
My gosh, could it be
a California thing
And interestingly enough, America's other tech superpower,
), won the search war with a differentiated offering that was far
simpler than the competition.
Remember the 1980s and 1990s, when consumer technology was
dominated by Japanese superpowers like
Trinitron was the bomb:
Now let's connect this back to this week's big news -- Apple's
third quarter earnings report from Tuesday.
Apple sold 31.2 million iPhones, smashing analysts' expectations,
which were in the 26-27 million unit range.
That equates to a year-over-year unit growth number of 20% where
analysts were expecting sub-5% growth.
Sequentially, iPhone unit sales fell by 17% -- a significant
improvement over last year's 26% drop.
And what's happening elsewhere in the smartphone universe?
Well, supposed Apple-killer
(OTCMKTS:SSNLF), maker of the smartphone-equivalent of a Quadruple
Bypass Burger -- the Galaxy S4 -- is hurting.
On July 5, the company announced that it expected a Q2 operating
profit of 9.5 trillion won, which according to
was 7% below consensus of 10.6 trillion. It has been rumored that
the company was hit by a slowdown in high-end smartphone sales,
which would imply a shortfall for the S4.
That same day, fellow smartphone giant
(TPE:2498) reported a huge earnings miss.
Google's own Motorola unit
has been a major disappointment in terms of sales up until the
second quarter, where it finally showed some improvement.
And what do these three companies have in common?
They make gigantic phones running Google Android, and constantly
play a game of one-upsmanship focused on ever-expanding display
sizes and fanciful but poorly implemented modifications of the
There is a major problem with this game.
It makes consumers think of smartphones as priced in terms of
megahertz/display size/pixels per dollar.
Aside from the lousy add-on software -- a huge obstacle to the idea
of consistency throughout the Android ecosystem -- can the average
shopper really tell the difference between a Samsung Galaxy S4 and
an HTC One and a Sony Experia Z and a Google Nexus 4 (which
thankfully, offers a "pure" Android experience)?
Of course not -- the only really obvious differences lie in the
Ooh, this one has more megapixels on the camera? I'll buy that one.
It's as if the entire smartphone industry, ex-Apple, had decided
that it's going to make its own version of the quadruple bypass
burger, but instead of jamming beef patties, it's using pixels.
This is highly destructive, and exactly why we have smartphone
companies failing to make real money in a market that, for all
talks of slowdown and maturation, is still growing at a 40%+ rate.
This is the dark side of running on a standardized operating
system. If you can't create a truly unique experience, it's
difficult to stand out and generate outsized margins. It feels like
we are seeing 2010's
Great Smartphone Bear Market
all over again, when I wrote this:
Forget the whole concept of a rising tide lifting all boats.
The smartphone market ex-iPhone has turned into something truly
awful: a bull market in unit shipments, a bull market in product
quality, and a bear market in profits.
Mobile-phone makers have fooled themselves into thinking that
slapping together a processor, a touchscreen, and Android is the
way to make money -- or at least avoid the potential
embarrassment of trying to stand out from the crowd. The Motorola
Droid was hot for a few months but then was overshadowed by the
Google Nexus One. And of course, the HTC Droid Incredible will
show those two up before getting crushed by yet another hot
Android phone three months later.
Now, is an iPhone inherently better than an Android phone?
But it's inherently differentiated because it's the Apple
And now, the smartphone industry increasingly looks like the PC
industry, where no one can gain an edge because everyone
essentially offers the same product with minor cosmetic
differences. It's the operating system makers that end up winning
when commoditization sets in --
) in the PC heydays and
Now let's talk about smartphone pricing, which has been another hot
topic of discussion this week.
Market research firm IDC said that the average price of a
smartphone fell to $375 from $450 since the beginning of 2012 as
(SHE:002502) pursue the low end of the market.
That's a 15% drop.
So let's look at how Apple is doing.
In the first calendar quarter of 2012, Apple hit an average selling
price of $647 on the iPhone.
That number fell to $581 this quarter, a drop of 10%. So Apple is
taking a hit on average selling price, but it's at least doing
better than average.
And since Apple is in the neighborhood of 20% of the smartphone
market, it has a noticeable impact on overall industry pricing.
So let's do some backwards math.
In Q1 of 2012, Apple had 24% of the smartphone market according to
IDC. Apple itself reported an average selling price of $647. So if
the average smartphone price was $450, then the average non-Apple
smartphone was priced at $387.79.
That's right. My
eighth grade math skills
just got upped to ninth grade.
For Q2 of 2013, let's assume Apple had 20% of the market. We now
know that its average selling price was $581. Plugging those
numbers in implies an average non-Apple selling price of $323.50.
That actually brings us to a 17% drop in non-Apple smartphone
And note this number could actually be much higher because Apple's
smartphone sales were 17% ahead of expectations while some other
companies like HTC and
) are clearly underperforming. If Apple's market share shakes out
to 22%, the non-Apple average price falls to $317 (an 18% drop). At
24% Apple market share, it goes to $310, a 20% increase.
Admittedly, my math is fuzzy enough for a presidential election
here as I don't know exactly how IDC made its estimates, but you
get the point -- smartphone pricing trends aren't helping Apple,
but they're certainly hurting less in Cupertino than in the rest of
So let's add this up.
Apple's iPhone franchise showed some major resilience as the
company sold 17% more units than expected, while multiple
competitors, all of which sell gigantic Android phones, are
reporting lousy financial results. And while pricing trends stink,
they stink a little less for Apple.
We won't know for sure how big Android fatigue is until Samsung
gives a full report, as it is the major superpower.
But for now, it seems more important to be different than bigger.
Disclosure: Minyanville Studios, a division of Minyanville
Media, has a business relationship with BlackBerry.
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