The company posted strong top-line growth across all product segments except for the iPad. Currency fluctuations remained a key pain point for Apple and will remain so going into the holiday season. Meanwhile, the silicon-related supply constraints during the quarter did not significantly hurt the company.

Apple Wholesale Revenues, Operating Margin, Gross Margin

Source: Counterpoint Research

iPhone 14 shipments constrained by supply, at least for now

• Apple’s revenue from iPhones grew 9.7% YoY despite foreign exchange headwinds on top of an already strong year-ago quarter.
• Apple registered a record-high installed base number for active devices driven by a record number of upgraders as well as ‘double-digit’ growth of switchers to iPhones, indicating continued migration from Android to iOS.
• Another notable milestone was the record growth in emerging markets, namely India, Indonesia, Thailand, Vietnam and Mexico, despite currency headwinds in the respective geographies, indicating strong headroom for growth in these regions.
• The higher mix of Pro models in the iPhone 14 line-up and higher memory variants is further driving up iPhone ASPs according to initial channel checks.
• The initial few weeks following the iPhone 14 launch were constrained by limited supplies. We will only see the ideal sales mix of ‘Pro’ and ‘non-Pro’ models and the effects of macroeconomic headwinds once the initial demand settles.

Record growth for Mac driven by channel fill, fulfillment of order backlogs and new launches

• Revenue from the sale of Macs jumped 25.4% YoY to an all-time high of $11.5 billion, despite foreign exchange headwinds.
• The supply of Mac devices improved and Apple was able to fulfill backorders from the previous quarter and fill channels ahead of the holiday season. The launch of the new M2-powered MacBook Air and MacBook Pro also helped the company.
• Mac and iPad categories were hit by supply constraints in the previous quarter, but Apple seems to have navigated the issue ahead of the holiday season.
• The installed base for Mac devices also reached an all-time high, attracting both upgraders as well as first-time Mac users.
• More than half of the Mac purchases came from new users. This is crucial for Apple as it continues to attract the creator community and expand its footprint to a wider audience.

iPad revenue down, mostly due to launch timing

• Revenue from the sale of iPads declined 13.1% YoY to $7.2 billion, mostly due to the timing of the product launches.
• The installed base for iPads also touched a new all-time high, with over half of all iPad purchases coming from new users.
• The iPad Pro 6^th Gen model was launched in October featuring Apple’s latest in-house M2 silicon chip, ProRes features, updated SmartHDR and faster connectivity (enabled with Wi-Fi 6E for the first time in an iPad model) for heavy users looking for top specifications.

Apple Watch remained supply-constrained

• The wearables category also posted strong growth, driven by demand for the new Apple Watch SE, Watch 8 and Watch Ultra, which remained supply-constrained during the quarter.
• There was growth in this category despite foreign exchange headwinds and loss of business in Russia. Notably, two-thirds of Apple Watch purchases came from new users.
• The new AirPods continued to contribute to the segment revenue but were equally affected by foreign exchange hurdles.

Services segment poised for growth but risks loom

• With the installed base of iPhones and other iOS devices at all-time highs, the services business is set for an upward trajectory and possibly a supercycle. However, the segment remains more exposed to risks than others.
• Despite being significantly affected by foreign exchange headwinds, the segment’s quarterly revenue rose 5% YoY to $19.2 billion. It accounted for 900 million paid subscriptions, which increased by 155 million in the last 12 months.
• Apple’s iCloud and payments services posted record-high quarterly revenues while its digital advertising and gaming services experienced softness due to the difficult macro environment. This is likely to continue in the December quarter.
• Apple increased the pricing of Apple Music primarily due to the higher cost of content licensing. But in the case of Apple TV+, Apple increased prices as it continues to expand its content library.

Enterprise segment continues to win new businesses

• Apple witnessed strong growth in the B2B segment, which targets large enterprises.
• Apple says Ford is using iPad and iPhone’s advanced camera system for quality inspection of the new F-150 electric trucks.
• Apple products are also helping companies such as Cisco attract new talent as well as retain employees.
• The high residual value of Apple devices remains a key selling point for the company to attract new customers. Apple’s trade-in programs further enable the brand to reduce the refresh cycle.

Overall, Apple’s strong grip over its user base continues to act as a growth engine, while its ‘walled garden’ approach builds further stickiness and brings in new users across its ecosystem. The current macro headwinds remain a temporary hurdle in the face of a longer-term growth supercycle as the company’s installed base continues to set new records.

The post Apple Beats Revenue Target Despite FX Headwinds, Supply Constraints appeared first on Counterpoint.

The company posted record revenues in the Americas, Europe and Rest of Asia-Pacific driven by strong double-digit growth in Brazil, Indonesia and Vietnam, and 2X growth in India. In China, COVID-19 lockdowns impacted the demand which rebounded towards the end of the quarter, but YoY growth still remained negative.

iPhone resilient to unfavorable FX, macro environment; wearables, home categories impacted

Apple recorded $63-billion revenue on the product side, covering iPhone, iPad, Mac, wearables, home and accessories. While the iPhone demand remained resilient, Apple did see some impact in other categories.

• iPhone revenue grew 3% YoY at $40.7 billion despite FX headwinds, but there was no evidence of macroeconomic impact on demand. iPhone 13 camera features, such as cinematic mode and macro photography, have been hallmarks of the model that continue to drive strong demand. The iPhone Mini has been the weak link among the four iPhone SKUs. But stronger differentiation of Pro and non-Pro lineups can bring more choice to consumers in the coming launch cycle.
• Apart from the strong upgrade cycle, Apple is successfully onboarding new users. Its switcher growth, which hit a fresh record during the quarter, is particularly driven by emerging countries where Apple has plenty of headroom to grow. This will continue to build further the 1.8 billion+ device installed base (last reported in January 2022).
• Mac and iPad revenue were down YoY at $7.4 billion and $7.2 billion, respectively. Since both categories were hit by supply constraints, the sensitivity of the demand to macro factors remained untested. Apple remains bullish on both iPad and Mac with vertical integration of its product lineup with the M2 chip and continued investment in Apple silicon.
• The wearables, home and accessories category reported $8.1 billion in revenues, down 8% YoY due to the impact of FX downtrend, macro factors and unfavorable launch timing of certain home and accessory products, like the launch of AirTags in Q2 2021. But Apple continues to add first-time users to its watch ecosystem. Almost two-thirds of the Apple Watch users are first-time users. Watch users still remain underpenetrated when compared to the brand’s strong iPhone user base. Apple continues to lead smartwatch innovation in features, design, pricing and new technologies like 5G Redcap, which are likely to be a growth engine for the next generation of wearables.

Apple Wholesale Revenues, Operating Margin, Gross Margin

Source: Counterpoint Research

Services continues to post double-digit record revenues; gross margins much higher than hardware

Apple’s services business continues to grow faster than hardware categories. The segment posted $19.6-billion revenue, up 12% YoY driven by a bouquet of services such as news, fitness and gaming. This also marked the highest ever share of Apple’s services revenue in its total revenue at 23.5%. It is important to note that the services gross margin at 71.5% remains much higher than the hardware gross margin of 34.5%.

• Services revenue growth was at an all-time high in the US, Mexico, Brazil, South Korea and India. Music, Cloud, Apple Care and Payment Services posted a record quarter.
• Most services had no noticeable impact due to weaker global economy, but digital advertising was clearly impacted. This is also consistent with the latest earnings reported by Snapchat, Facebook and Google.
• Higher lending rates are leading to leaner advertising budgets. The impact on Apple is likely to be much lower as much of its services revenue is recurring.
• The subtle placement of Apple products in its original content on Apple TV+ has created strong brand loyalty and continues to fuel the growth of hardware products as well. Severance and Black Bird were notable mentions from the previous quarter. This will continue to build up as Apple wins streaming rights for Friday night baseball and soccer leagues.
• Apple now has 860 million paid subscriptions across its services platform, adding 160 million in the last 12 months alone. But Apple shied away from giving a certain growth rate for its services business due to the breadth of services.

Apple Device and Services Super Cycles

Source: Counterpoint Research

 Opportunities

• Apple’s next-generation CarPlay, announced at WWDC22 in June, is diving deeper into the automotive industry ahead of the anticipated Apple Car launch. At present, 98% of the cars sold in the US come with pre-installed Apple CarPlay. This further builds an opportunity to sell services to car owners. GM already drives $2 billion+ from in-car subscriptions, while Tesla charges $199 per month for full-self-drive (FSD) capability.
• Apple sees a two-fold initiative to keep affordability in check – the buy-now-pay-later trend that is already picking up across the world, and a trade-in program. The latter is a huge differentiator as the perceived value of a used iPhone remains a key value proposition for consumers making a new purchase.
• Watch is a powerhouse of health data for Apple and the company continues to add new features to target daily lifestyle activities around wellness and fitness. Apple talked about new features awaiting FDA approval that could track irregular heart rhythms.
• On the AR/VR opportunity, there are now 14,000 ARKit apps on the app store accessible through iPhone and iPad. But Apple again shied away from making any speculative statement on the much-hyped AR/VR hardware.

Currency headwinds but eased supply constraints in the coming quarter

Apple expects currency headwinds to continue in the September quarter, but supply chain constraints are likely to ease unless the geopolitical or economic environment worsens. Counterpoint’s base case scenario expects a YoY growth for Apple in the next quarter. Weaker overall demand is seen, particularly in China and Europe, but the US continues to record strong demand driven by carrier subsidies and promos. The brand’s growth in the emerging market also continues.

In the medium term, a modest sales cycle is likely to be followed by another super cycle of iPhone sales. This will further inflate the iOS user base, which will catapult Apple’s services revenue beyond 25% of its total revenue sooner than we expect.

The post Apple Posts Revenue Growth Despite ‘Cocktail of Headwinds’ appeared first on Counterpoint.

Smartphone inventories in the US are higher than last year. However, 2021 may not be the best YoY comparison as the industry was going through 4G LTE chip shortages last year. Smartphone inventories in the US fluctuate between 4-6 weeks but they can go even higher during new device launches and holiday season channel fills.

We believe that the inventories are normal at present given the seasonality of demand, especially ahead of the back-to-school promotional season. The demand has been steady, driven by strong carrier promotions, especially in postpaid channels.

iOS, Android Inventory Levels in US Smartphone Market 

Source: Counterpoint’s US Monthly Smartphone Inventory Tracker

Android vs iOS inventory

Apple has the fastest factory-to-consumer shipping timelines among smartphone OEMs. The iOS inventory was very low at the end of 2021 as the iPhone 13 remained in high demand. The inventory started to increase as the initial demand settled and supply improved. Sell-in continued to improve until March 2022 but dropped back again in April due to China lockdowns. We expect Apple’s Q2 2022 sell-in to remain flat YoY.

Android inventory levels have been higher than in previous years but still manageable. Samsung’s inventory went up in January 2022 driven by the Galaxy S22 series shipments. The Galaxy S22 Ultra accounted for nearly half of the Galaxy S22 series shipments. The Galaxy A13 5G, which is the cheapest 5G device in Samsung’s portfolio, also came in large volumes. Motorola recorded high volumes in Q4 2021 driven by new launches but cooled off in Q1 2021. The brand, too, was impacted by China lockdowns in April 2022 but picked up quickly in May 2022. The Walmart reset was another driver of higher inventories at the end of Q2 2022. This was further supplemented by the launch of new devices from TCL and Nokia HMD, especially in Tracfone channels.

Low-end Android market has growth potential

High smartphone inventory is mostly driven by the low-end sub-$300 Android devices in prepaid and national retail channels. This is manageable ahead of the back-to-school promotional season as the demand is likely to pick up. Besides, with rising inflation, we might see the demand shift back from postpaid to prepaid as consumers shy away from premium postpaid plans and two-year lock-ins. This would be a change from the previous 10 quarters but could further boost demand at the low end.

Verizon, AT&T, T-Mobile and Dish continue to build their prepaid brands. Verizon has strengthened its prepaid presence with the Tracfone acquisition. It now owns Tracfone, Straight Talk, Total Wireless, Net10 and Visible. AT&T, too, enjoys a strong prepaid presence with its Cricket brand. But Dish is likely to be the dark horse that can disrupt the competition in national retail with acquisitions of Republic Wireless, Ting and Gen Mobile. T-Mobile has added national retail doors and its prepaid brand Metro by T-Mobile will remain competitive.

Lastly, as the carriers shut down CDMA networks, they will continue to drive demand for low-cost 4G or entry-level 5G devices. Verizon’s acquisition of Tracfone will drive device upgrades due to compatibility issues as some Tracfone subscribers will migrate from AT&T and T-Mobile’s networks. In addition, DISH must move its Boost subscriber base from T-Mobile’s network to its new MVNO partner, AT&T.

Overall, retail trends in the US market continue to hold strong despite inflationary pressures. Smartphone demand has proved to be resilient both through COVID-19 and the steep inflationary growth of 2021. Though the market can change quickly, early indications are that the US market will see about 3% YoY growth in H2 2022 with a strong Q4 holiday season.

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Smartphone service revenues are growing faster than hardware revenues

Smartphone hardware revenues have grown at 4% CAGR during 2015-2021, while service revenues have grown at 23% CAGR in the case of iOS and 12% in the case of Android. Services revenue is a big part of the iOS story, but Android falls behind by a huge margin. At current growth rates, Apple’s service revenues could overtake hardware revenues between 2028-30.

Exhibit 1: iOS vs Android Hardware & Services Revenues

App stores account for a major chunk of the services revenue across both iOS and Android. But iOS is far ahead of Android in capturing the non-app store revenues i.e., subscription-based services driven by a bouquet of Apple services such as Apple Music, Arcade, TV+, News+, iCloud, Care+, Fitness+, etc. Together, these services can generate an annual revenue of $1200+ for an Apple power user. Android’s service ecosystem on the other hand is scattered and skewed towards ad-revenues – by design.

Android service ecosystem remains complex, while Apple declutters

Apple envisions hardware as a medium to target daily consumer needs such as health, gaming, utility, finance, entertainment, etc. Obviously, Apple makes its own hardware, but the motivation to do hardware is driven by fat margins and its walled garden approach to services. There is no denying that Apple caters to a premium user base which allows Apple to capture higher customer lifetime value through its range of subscription-based services. But consumer spending on services will continue to rise while the smartphone remains the centerpiece of daily consumer needs from shopping, food, finance, health and more.

In the case of Android, the service ecosystem is scattered, lacks scale and sense of community.

• The efforts to build a service ecosystem are scattered with each OEM trying to build its own. From LeEco to Xiaomi to Samsung, each OEMs made efforts to create an ecosystem of finance, entertainment, and health services. This is not sustainable as switching among Android OEMs remains high aside from very few OEMs.
• There is a low sense of community. Apple Originals TV Show, Ted Lasso, was extremely popular and created a global community of fans (primarily Apple users). This is hard to achieve among Android users unless there is a global force behind it. YouTube and Netflix are great contenders but they’re not Android exclusive.
• Lack of scale: A service initiative by an OEM remains restricted to its own user base and adoption among other Android OEMs remains low.
• Android services are confusing and poorly bundled. The utility of these services sometimes overlap, app discovery is scattered with OEM-driven app stores, and the experience is inconsistent and confusing for Android users. Apple on the other hand focuses on decluttering the experience and unifying subscriptions through Apple One. Minimal changes have been made in the past, which sends a strong message of continuity to its users.

Google is uniquely positioned to build a unified Android service ecosystem

Our research VP, Neil Shah, highlighted in his blog “Google’s Path to Vertical Integration with Tensor SoC – Become Apple or Stay Google?” why Google struggles with hardware. Google knows it’s not competing head-on with Apple, Samsung or other Android players, and likely doesn’t want to either. Its hardware game is more like Microsoft’s – showcasing what can be done.

Google makes most of its revenue from its core search driven advertising business, but it can do much better when it comes to services. There is a string of examples that indicate that Google often succeeds through experimentation. In fact, there is a website “Killed by Google” that lists more than 250+ Google products and services that have been discontinued or rebranded by Google.

In the case of Android, the hardware void is mostly filled by OEM partners, but that shouldn’t be seen as a drawback, rather an advantage because as hardware margins in Android market are razor thin. Therefore, Google must focus on building a unified service ecosystem that cuts across all Android users and brings the Android community together. It ticks all the boxes to stack up against Apple’s service, app, and search ecosystem.

Exhibit 2: iOS vs Android Apps & Services Ecosystem

There have been some initiatives by Google on this path already, but it still lacks a clear holistic approach that stiches together Android users and creates a strong sense of community. A service-driven model is the future of consumption. Smartphones, connected PCs, smart vehicles (connected, electric and autonomous), which largely drive their revenues through hardware right now will move towards a service-based model, powered by software cutting across endpoint devices, edge and cloud. Hardware will continue to evolve over the decades – laptop converging into tablets, smartphones into foldables, smart glasses or XR headsets may, ultimately, cannibalize smartphones – but a software hegemony will reign through decades.

The post Software & Services Will Drive Smartphone Industry Revenues Through the Next Decade appeared first on Counterpoint.

A hardware subscription should not be confused with hardware financing or Apple’s annual upgrade program offered in the US — the key difference here is “ownership”. Apple already offers device financing plans in many regions and some carriers also offer the option to lease the device for two years (after which the consumer is expected to return the device or pay the residual value). The value proposition for Apple lies in driving higher stickiness within its ecosystem while enabling faster upgrades. Therefore, bundled subscription plans with the option to pick and choose more than one hardware and service product will give a big boost to Apple’s “power users” which generate a much higher monthly ARPU across the brand’s products and services.

Hardware subscription model: Kill many birds with one stone

Hardware subscription can potentially make Apple immune to key challenges faced by the industry.

Firstly, replacement cycles are getting longer with hardware improvements. The average replacement cycle for iPhone users has increased to more than 30 months. The users are holding on to the devices longer because of their great quality and Apple supporting multi-year updates (at least 3-4 years). Since Apple cannot scale back on this value proposition, which is good build quality and software, it has to find newer ways to increase iPhone sales. Hardware subscription is one way to make sure users upgrade to the latest and greatest devices more frequently.

Secondly, the average selling prices (ASPs) have stabilized. Note that iPhone is not the most expensive smartphone in the market anymore, as it was 4-5 years back. A hardware subscription will allow Apple to minimize the cost of entry for a new user, enabling the brand to target higher ASPs.

Thirdly, Apple’s service revenues have seen significant growth but still accounted for 15.7% of its revenue for Q4 2021. Apple realizes that a “power” iPhone user can generate a much larger “customer lifetime value (CLV)” over a period of time if locked into a subscription bundled with services. According to Counterpoint Research Ecosystem Analysis, Apple can potentially generate a monthly ARPU of ~US$400 or an annual revenue of ~$4800 from a “power user” subscribing to its latest hardware, software and services. Apple’s bundling of services with hardware subscription will guarantee long-term subscription to Apple services with a stable revenue stream and outlook. Note that equity markets hate elements of uncertainty and a stable outlook is highly desired.

Monthly ARPU (Hardware + Services) for Apple Power User ~400

Source: Counterpoint Research Ecosystem Analysis, 2021

Fourth, the smartphone market structure is different across countries. There are three typical models – open-channel market, carrier-driven market with device subsidized and carrier-driven market with device financed. While carriers play a significant role in keeping the smartphone cost down in carrier-driven markets, consumers pay full price upfront in open channel markets. Although third-party financing options are emerging in open channel markets, the uptake for such services is still limited. We believe that the hardware subscription model will have less impact in markets where devices are already subsidized through carriers. But a subscription model will also bring all three types of markets on a level playing field, minimizing the cost of entry and giving another boost to the iOS installed base.

Last but not least, the hidden element and the most promising gameplay here could be a stronger hold of the secondary market, i.e. smartphone’s second life. At present, the refurbished smartphone market is dominated by Apple devices but the whole value chain is heavily segmented. Apple devices manage to grab an attractive value for used phones as well. With power users upgrading more frequently through Apple, hardware subscriptions will complete a full circle, creating an opportunity for Apple to extract full value from the end-to-end device lifecycle. It will enable Apple to control the whole refurbished value chain (right from device collection, grading, repair/refurbishment to resale) and potentially put Grade A devices back into the hardware subscription cycle as refurbished devices. This will also be in line with global sustainability initiatives and boost Apple’s original spare parts program.

Key Implications

Apple’s hardware subscription plan can have a multifold impact across different market elements. Overall, some mobile network operators won’t entirely welcome the news, but this was inevitable. Equity markets will be very happy to see a strong and stable revenue outlook.

Further, end-to-end control of buying and selling experience of hardware, software and services also opens the door for many other opportunities. eSIM and availing financing in-house means it now owns a critical (and previously painful) part of the customer journey.  The initiative dubbed as “breakout” mentioned Apple targeting payment processing, credit checks and many other fintech services. A hardware subscription will lock premium iOS users, allowing Apple to monetize daily financial transactions through a range of its possible fintech products.

A subscription model will establish a stronger relationship with premium iOS users with more frequent transactions compared to the existing one-time purchase transaction. This will have a multifold impact across Apple’s existing and future products, driving a much higher dollar value relationship with its user base.

The post Apple’s Hardware Subscription Plan a Game Changer appeared first on Counterpoint.

Over the years, both carriers have maintained a range of white-label devices to fill gaps in their portfolios by offering affordable device options. Lately, the focus has shifted towards the sub-$300 5G device segment, especially in prepaid channels. In 2021 so far, US carriers have launched white-label 5G devices such as the REVVL 5G, REVVL V+ and Cricket’s Dream 5G/AT&T Radiant Max 5G, bringing down the 5G device cost to sub-$200.

In September 2021, Dish’s Boost Mobile announced the Celero5G-branded smartphone. The device, launched at a price of $279, will include unlimited talk time, text and data (speed throttled after 35GB) for 12 months. Further, the Celero5G comes packed with a 6.52-inch screen, quad camera and 4GB RAM/64GB NAND. It is rumored to be powered by the MediaTek Dimensity 7000 chipset. The device will be available at Boost Mobile-branded retail locations and in national retail.

Dish claims that the device fills a void in the market by providing an affordable 5G option to the customers. This is parallel to AT&T and T-Mobile’s strategy to bring more subscribers to the 5G network.

Opportunity for ODM/EMS firms

Industry continues to ponder whether Chinese OEMs will be able to enter US carrier channels. So far, none of the major Chinese OEMs have been able to range among US carrier channels apart from OnePlus. However, the white-label device opportunity brings OEM, ODM and EMS firms to a level playing field and opens a backdoor channel for entry to the US market.

This has enabled many ODM/EMS firms, such as FIH (Fushan), Wingtech, Tinno and Vinsmart, to work with US carriers. Many Indian OEMs are also aggressively looking to cater to the rising demand.

Apart from the carrier-branded white-label devices, some local US brands are also moving their production outside China. Recently, India-based EMS firm Dixon Technologies announced a partnership with Orbic to manufacture 5G smartphones in India. Orbic devices are sold in Verizon and TracFone channels in the US. BLU-branded devices sold in national retail channels such as Best Buy, Walmart and Target are also being manufactured in Vietnam. There are many other similar brands that are now looking at manufacturing outside China to circumvent unnecessary logistical hurdles.

While these devices don’t get much attention and have lower marketing spend, the arrangement allows US carriers to fill gaps in their smartphone portfolios. At the same time, it allows ODM/EMS firms, which remain behind the scenes, to avoid the marketing cost, which is typically shared between the carrier and a mainstream OEM brand (like Apple, Samsung, Motorola and OnePlus).

The post US White-label Smartphone Opportunity Continues to Grow appeared first on Counterpoint.

According to Counterpoint Research’s US Monthly channel share tracker, national retail accounted for 14% of the US smartphone sell-through in the second quarter. Walmart remains the largest national retail channel followed by Best-Buy, Target, Costco and Sam’s Club.

Exhibit 1: US Smartphone Sell-through by Sales Channel

Source: US Online-Offline Monthly Channel Share Tracker (Q2 2021)

Walmart Targeted at Low-End & Mid-Tier

Sales at Walmart remain targeted towards mid-tier and low-end wireless retail opportunity. Smartphone brands like Samsung, Motorola, Alcatel and white-labeled AT&T and Cricket devices remain very strong at Walmart. The competition in national retail remains heavily in favor of TracFone brands (such as TracFone, Straight Talk, Total Wireless, NET10 and Simple) selling in Walmart. This places Verizon in a very favorable position as it looks to complete the integration of TracFone by the end of 2021.

Exhibit 2: US Prepaid Brand Ownership and Sales Channel

While AT&T, too, enjoys a strong prepaid presence with Cricket and AT&T prepaid, Dish is likely to be the dark horse that can disrupt the competition in national retail. Dish, which now owns the Boost Mobile brand, has been on a buying spree that will likely continue. The #4 US carrier acquired Republic Wireless in March 2021, Ting in August 2021 and Gen Mobile in September 2021. This takes Dish’s prepaid subscriber count to over nine million and brand count to four in national retail.

Prepaid-Postpaid Migration

In 2021, postpaid deals have been very strong for premium smartphone devices. 5G remained at the center of the three national carriers’ marketing focus. BOGOs and $800+ trade-in deals on new iPhones and Galaxy S21 remained consistent throughout the year, leading to a higher migration in favor of postpaid. This trend of deals is likely to continue in Q4 2021 and 2022, making competition in prepaid more intense.

While Metro by T-Mobile and Cricket account for the majority of the net adds, Dish and Verizon (especially after the Tracfone acquisition) will now be looking to advance their subscriber base. Dish with its four prepaid brands would likely expand its presence in national retail. It is expected to start selling in Target stores in October 2021. Earlier, during an investor presentation, Verizon’s John Dunne also hinted at broadening Verizon’s prepaid offerings. We can expect Verizon to get more aggressive within prepaid if the TracFone deal is completed in Q4 2021.

Overall, national retail remains key to US carriers’ wireless retail strategy. Carriers continue to pay lucrative per-line commissions to retailers. The key target of the carriers is to capture the “customer lifetime value (CLV)”, as 5G opens up new opportunities, and/or finally have them upgrade to a premium unlimited plan.

The post T-Mobile Looks to Shake up Wireless Competition in National Retail appeared first on Counterpoint.

If the pandemic wasn’t enough to drive this growth, Tesla chief Elon Musk’s tweets about going live on Clubhouse added warp speed to it. According to Clubhouse CEO Paul Davidson, the app has 10 million weekly active users currently. Unofficial estimates put the startup’s value at over $4 billion.

Social Media Giants Late to the Party?

It is surprising how the incumbent social media giants missed this bus. After all, they spend a lot of time and money to identify the next growth opportunity to drive user engagement, which ultimately translates into ad revenue. But Clubhouse was not the first missed opportunity for them. Earlier, Instagram came up with stories which we now see across all social media platforms, including Twitter and LinkedIn. TikTok also disrupted social media with short-format videos and Instagram was quick to follow. But while large tech corporations can get blindsided in identifying elements of their growth strategy, their reach and scale give them the privilege to be late to the market and still remain a leader.

Can Voice be a Revenue Engine for Social Media, Streaming and Messaging Platforms?

Audio-based social media has drawn interest outside of social media too. Apart from Facebook Live Audio and Twitter Spaces, music-streaming giant Spotify has launched Greenroom, gaming chat app Discord has launched Stage, and Telegram has tweaked its audio features for live voice chat. Other players like Racket, Fireside, Soapbox and Air Time are also attempting to capture value from more customized experiences.

While everyone competes for monthly active users (MAUs) and user engagement, there are several opportunities to monetize the ever-growing audio-based social media.

Paid and brand sponsored community rooms could open a revenue opportunity for audio-based social media platforms. YouTube already has a community of content creators who monetize video content. Instagram influencers leverage their reach for sponsored brand posts while Discord channels have done the same with information and file sharing. Voice is no different and seems highly promising to become the next growth avenue for content creators. How about Spotify being a platform for live singing?

Similarly, brand sponsored community rooms can foster new ideas for marketers. They can connect with customers and open new interactions that could lead to stronger brand loyalty. Brands can further leverage voice platforms for product launch, flash sales, brand trivia contests, promotions, and much more.

Additionally, millions of daily conversations could be a goldmine. Voice data could be used to reveal and index user interests much more precisely than other user data. Synthesis of voice conversations has the potential to unlock billions in ad revenue.

Audio-based social media thrives on the intimacy, originality and immediacy that voice interactions provide. At present, audio-based social media is at a very early stage and has a long journey ahead. It will continue to evolve and create several monetization opportunities across the social media and other connectivity platforms. But who wins the race will solely depend on scalability, time to market and product innovation.

The post Voice – A Multi-billion Dollar Opportunity for Social Media appeared first on Counterpoint.

5G investments, Infrastructure and Existing Spectrum Assets

• Rogers will gain access to Shaw Communication’s existing spectrum assets, especially in low-band and mid-band, which will be crucial for rural and suburban 5G coverage.
• It will also solidify Roger’s position going into the mid-band, 3.5 GHz spectrum auction that is scheduled for mid-2021, and possible mmWave auctions towards the end of 2021.
• For Shaw, the decision comes at a crucial time where it is required to make huge investments into 5G as the industry transitions.
• The news comes amid the debate for a bigger role for MVNOs to make the wireless industry more competitive. Meanwhile, Shaw Communications remained the fourth largest wireless operator and a key facilities-based competitor for the big three Canadian carriers – Rogers, TELUS and Bell.

Regional Play for Rogers to Gain Subscribers

• The deal will help Rogers gain more share in three key regions – Ontario, British Columbia and Alberta.
• In Ontario, the deal will further strengthen Rogers’ position and allow it to further gain a higher share of premium subscribers, as Freedom mobile has a strong subscriber base in Ontario.
• It will also allow Rogers to penetrate the Western provinces while tapping into Shaw Communications’ wireline and wireless subscriber base. At present, TELUS remains dominant in British Columbia.
• There is also an emphasis on filling the connectivity gap that is currently in the rural regions of Western Canada, specifically with Alberta and its steadily growing population.
• Shaw has a stronger presence in Western Canada, so Rogers gains access to a market where it can use its resources to improve network connectivity and the push for 5G rollouts in that region.
• Rogers has already allocated $2.5 billion in investments to the implementation of 5G networks in Western Canada and an additional $3 billion on supporting additional network, services, and technology investments.
• But the key challenge for Rogers is in maintaining its high ABPU (average billing per user) following the acquisition. Shaw Communications’ ABPU remains significantly lower than the big three Canadian carriers – Rogers, TELUS, Bell.

Drawing Comparisons with T-Mobile-Sprint, Deal Likely to Come Under Scrutiny

• The deal is likely to see some resistance as competition in the wireless industry remains a hot topic in Canada. Shaw Communications (owns Freedom Mobile and Shaw Mobile brands) served as a key competitor and challenged the industry with aggressive wireless plans.
• The transaction is similar to the T-Mobile-Sprint deal earlier in the US, where both companies pitched synergies, investment in 5G, focus on rural and creation of more jobs, as highlights of the deal.
• On the retail side, we can expect some retail restructuring, but this will depend on the details of the Rogers-Shaw deal in relation to retail locations. Despite Sprint having a lot of brand recognition, sprint.com and Sprint physical stores were transitioned to the T-Mobile incredibly quickly.
• Overall, the deal is likely to be hotly debated in the coming weeks while it is under government review. It is also likely to draw some regulatory pressure with respect to the competitiveness of the industry.

The post Rogers Looks to Strengthen 5G Position with Acquisition of Canada's Fourth Largest Carrier, Shaw Communications appeared first on Counterpoint.

Smartphone sales in Canada inclined 13% YoY in Q3 2020, according to Counterpoint’s North America Monthly Channel Share Tracker service. Apple and Samsung together accounted for 86% of the total sales compared to 82% during Q3 2019. In volume terms, Apple inclined 7% YoY despite the new iPhone sales being pushed to October, while Samsung inclined 21% YoY.

Senior Analyst Hanish Bhatia said, “Smartphone demand rebounded in Q3 2020 driven by pent-up consumer demand and solid uptake of back-to-school promotions. Retail activity picked up as consumers were now more confident about going outdoors. Online sales also remained strong with some consumers opting for store pick-up options. This trend is likely to continue as carriers push for a healthy mix of digital sales and brick-and-mortar sales. The market witnessed strong competition among carriers to gain share, especially among flanker brands. Customer churn remained comparable to 2019.”

Speaking on Canada’s 5G ecosystem, Bhatia said, “5G remained in focus as carriers shifted their marketing efforts to get an early lead among premium early adopters ahead of the Apple launch event. The number of 5G models has gone up from 3 in March 2020 to 14 in November 2020 after the recent Apple launch. As of October 2020, Canada had added more than half a million 5G devices to its networks. Most of the 5G device sales are restricted to the premium price bands, while average 5G device costs continue to decline in the US and other countries with 5G networks.”

Commenting on 5G opportunity, Research Director Jeff Fieldhack said, “Rogers leads the market in terms of 5G deployment, with active networks across 130 metros. With the most extensive network rollout and the largest Apple installed base, Rogers is in a good position for a strong 5G upgrade cycle during the fourth quarter. Bell and Telus also launched 5G network services at the end of Q2 2020 and continue to ramp up across Canada. Carriers are now more than prepared for a strong quarter, but another COVID-19 wave can play a spoiler with diminished consumer purchases. 5G in Canada is still in the early stages of deployment with carriers leveraging the existing spectrum assets for the initial 5G push. The sweet spot for 5G performance and coverage will be the 3.5GHz spectrum, and auctions for this spectrum will not be before June 2021. The carriers could take another year after the auctions to start using this spectrum.”

On OEM performances, Fieldhack added, “Apple remained resilient and maintained its lead over other brands. Supply constraints seen in Q2 2020 eased in Q3 2020. We see less display devices on retail shelves to protect against COVID-19 spread, especially in case of new iPhone 12 series. Samsung did well on a YoY basis driven by demand for the new Note 20 series and Galaxy A51 and A71 devices. The LG Velvet remained in focus for the mid-range 5G value consumers. Motorola registered strong growth on a YoY basis after facing supply issues during the last quarter.”

Commenting on the Canadian market outlook, Research Analyst Maurice Klaehne said, “We can expect a strong upgrade cycle as we enter the promotional period during Q4 2020 – Black Friday followed by Boxing Day. We are already seeing a great response towards the new iPhone devices, especially the iPhone 12 variant. However, COVID-19 has negatively impacted small businesses. Besides, this growth will be slightly offset by less immigration activity and fewer student purchases in Canada during the fourth quarter.”

Key Highlights:

• Apple captured six spots in the top 10 best-selling devices during the quarter. The Apple iPhone 11 continues to be the best-selling smartphone for the fourth consecutive quarter.
• Samsung captured the remaining four spots in the top 10 list. The Samsung Galaxy S10 series continues to do well along with the A51 and Galaxy S20 series devices. The new Galaxy S20 FE has also registered strong consumer response which will be of help during the fourth quarter.
• LG registered single digit YoY growth with the help of the 5G LG Velvet and other K series models – K61 and K41S – in budget price tiers.
• Google has been able to gain some momentum. Pixel 4A promotions were stronger than expected, but the marketing efforts shifted towards the newer Pixel devices such as the Pixel 5. The new Pixel 5 is already available at heavily discounted prices in early Black Friday deals.
• Motorola has been able to gain share in budget category devices. The Moto E particularly did well among entry-level devices.

Please feel free to contact us at press(at)counterpointresearch.com for further questions regarding our latest
in-depth research, insights, or press inquiries.

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The post 5G Picks up Pace in Canada in Q3; Smartphone Installed Base Crosses Half Million in Oct appeared first on Counterpoint.

With its latest Pixel devices, Google has finally managed to make decent upgrades on the hardware. The main focus is obviously the added ‘5G’ support, apart from several other enhancements related to display, camera, battery and on-board storage. On the display side, it includes FHD+ OLED panel and an Always-on Display. While the Pixel 5 features a screen with 90Hz refresh rate, HDR support and Corning Gorilla Glass 6 protection, the Pixel 4a 5G sticks to a 60Hz screen and Gorilla Glass 3 protection. We also finally have the ultrawide camera and new software enhanced features for portrait mode photography. Pixel 5 also includes wireless charging, reverse charging and IP68 dust and water-resistant features that are missing in the cheaper Pixel 4a 5G device. Surprisingly, while the Pixel 5 comes with USB Type-C port for audio and data transfer, the Pixel 4a and Pixel 4a 5G models also come with a legacy 3.5mm audio port. Below is a comparison of the latest Pixel devices in terms of hardware:

Google Continues to Build on its Software Prowess

Google has created its own niche among consumers with focus on photography while leveraging its software prowess. Pixel devices bring the best-in-class Android experience along with in-built AI neural engine that supports various features that might seem slightly distant for many smartphone OEMs.

We have seen previous Pixel devices offering some distinctive features such as live captions, active edge assistant, AI-based on-device Google Assistant, Titan M security chip, the Shazam-like ‘now playing feature’, the car crash feature and much more. This is apart from its dominance in capturing the most natural photographs, along with features such as Astro photography and dual exposure control, which make us count Google Pixel devices among the best photography smartphones. The new range of Pixel devices continues to build on these capabilities apart from new additions such as night sight with portrait mode, portrait light (AI-based enhancements that can be applied to existing photo library), cinematic pan, extreme battery saver, hold for me, and much more. But unfortunately, Google did not emphasize enough on such features which make it stand apart from other smartphone OEMs.

The 5G factor

Google has managed to add ‘5G’ capability in its Pixel range of devices at the right time. The industry is at an inflection point for 5G device democratization over the next few quarters. Google has entered the 5G device race right before the Apple announcements in this regard, which are expected in a few weeks. While Apple is likely to become a major catalyst for 5G device adoption, Google has made a very smart move when it comes to pricing. Google’s top-of-the-line Pixel 5G is likely to compete against the lower-end iPhone 12 devices or existing Samsung Note 20/S20 devices. The new devices come with Snapdragon 765G SoC rather than the top-of-the-line Snapdragon 865+ SoC. This means that Google is not trying to compete with the super-premium flagship ranges from Apple and Samsung, but rather focusing on the mid-range and affordable premium price segments while leveraging its software prowess as the main selling point.

Having said that, it seems the Pixel 4A 5G supports sub-6 5G bands only, while the Pixel 5 supports both – sub-6 as well as mmWave. This means that an unlocked Pixel 4A 5G device bought from Google Store will not be able to provide a full 5G experience over the course of years. That is why Verizon announced a separate SKU, being called Pixel 4A 5G UW. It is priced at $599 (i.e. an additional price delta of $100, which the industry calls as “mmWave tax”) while the Pixel 5 will still be sold at $699. With only a $100 price difference between the two devices, it makes the Pixel 5 a much better choice.

The 5G capability will enable Google to upsell its content and services such as Stadia, YouTube premium, storage and much more, going forward.

Still a Device for Premium Markets

Google has been very selective in picking its key markets. Google Store lists nine countries that will be selling the Pixel 5 and Pixel 4a 5G devices — US, Canada, Japan, UK, Germany, France, Ireland, Australia and Taiwan. But it may likely add more countries such as India, Singapore, Italy and Spain, which currently sell previous generation Google Pixel devices.

Google was not able to sell the Pixel 4 and 4 XL devices in India due to its Soli Radar chip on the front, which utilized the 60GHz frequency band banned for commercial use in India. It seems Google has finally removed the Soli Radar chip and the Pixel range can now be sold in India.

Google would be keen on capturing a pie in the European market in absence of Huawei, but it is likely to face tough competition from other Chinese OEMs. Google does have an edge in terms of brand equity, but it needs to build strong carrier partnerships and have a sturdy pricing and promotion strategy to capture the opportunity. As we write this article, we can already see some price aberrations across different Google stores.

Source: Google Canada Store (Prices in CAD)

After currency conversion, Pixel 5 is priced at $599 in Canada, making it $100 cheaper compared to its retail price in the US. We delved further into this and found out that Pixel 5 is actually a sub-6 only device for every country other than the US. Therefore, there will be some price differentiation across these markets. Although Google Store drives only a fraction of Google Pixel sales, the bottom line is that Google must have a sturdy pricing and promotion strategy across regions, especially in carrier channels.

The Google Ecosystem

Google has plenty of room to grow given its control over the connected ecosystem, which goes beyond just smartphones. It is a major competitive advantage over any other smartphone OEM and positions Google to offer the best Android user experience, optimized and customized for each user.

The Pixel devices just need to strike the right chord among users with a hardware strategy that is sturdy, consistent and competitive in terms of specifications. Google has definitely moved closer to that goal with the new range of Pixel devices, but it needs to further strengthen and stimulate its sales and marketing efforts at the ground level in key markets.

The post Google Looks to Capture Mid-range 5G Device Market With New Pixel 4a and Pixel 5 appeared first on Counterpoint.

Smartphone sales in Canada declined 36% YoY in Q2 2020, according to Counterpoint’s North America Monthly Channel Share Tracker service. The COVID-19 outbreak impacted Canadian smartphone sales while the majority of carrier stores remained shut during most of the first half of the quarter.

Apple and Samsung together continue to dominate the Canadian smartphone market. In Q2 2020, the two brands together accounted for 86% of the total smartphone sales compared to 81% during the Q2 2019. In terms of the volumes, Apple declined 24% YoY decline compared to Samsung’s 41% decline.

Commenting on Q2 2020 performance, Senior Analyst, Hanish Bhatia said “The majority of carrier stores remained shut through first half of the quarter, especially those in shopping malls. The impact of COVID-19 on retail was more severe in British Columbia initially and later moved to Quebec and Ontario. We also witnessed the lowest carrier churn rates we have seen in a very long time. This prompted carriers to quickly align with a more online-driven sales strategy, which did see a significant spike. Customers refrained from making new purchases and preferred to isolate at home.”

Adding further on 5G onset in Canada, Bhatia said, “In June, Bell and Telus launched 5G network services in parts of Canada. This is in conjunction with the earlier announcement of Rogers, which launched 5G services earlier this year. 5G in Canada is still in the early stages of deployment. The big three carriers in Canada are leveraging the existing spectrum assets in mid-band (1700-2500 MHz) for the initial 5G push. The global sweet spot for 5G coverage is the 3500 MHz spectrum band, for which the auction has been postponed to June 2021 by ISED (Ministry of Innovation Science and Economic Development). Therefore, we may still be far from experiencing the true 5G experience in Canada.”

Commenting on the OEM performance, North America Research Director, Jeff Fieldhack said, “The market was under tight supply due to border restrictions. Apple was more resilient to declines compared to other brands. Samsung lost ground in the premium category while it gained slightly in the mid-range price segment with the new A-series models doing well. Later in the quarter, the premium Galaxy S-series picked up steam from heavy promotional discounts. Google and LG were the other two brands that did well while Motorola remained under tight supply.”

Talking about the market outlook, Research Analyst, Maurice Klaehne added, “June witnessed some recovery as most stores started to open with the market trending slightly better in July as well. However, there is still a lot of apprehension regarding how the market will behave post the Phase III reopening in some parts of Canada. ‘Back to school’ promotional periods will help. A lot of Canadians have been getting federal support in the form of CERB and CESB for students. Small businesses have also benefited from CEWS support, but it remains to be seen how the market behaves once the federal support ends.”

Key Highlights:

• Apple captured seven spots in the top 10 best-selling devices during the quarter. Apple iPhone 11 continues to remain the best-selling smartphone in Q2 2020.
• Samsung captured the remaining three spots in the top 10 best-selling models list. Surprisingly, the previous generation Galaxy S10 series fared better than the latest Galaxy S20 series. Galaxy S20 sales started to pick during late June driven by heavy promotions.
• LG declined 60% YoY but did well with the K20 series. ThinQ series sales are moderate but steady within Bell and Telus retail stores.
• Google with limited SKUs on the retail shelves also remained in short supply, but the brand has managed to gain some equity in premium markets. It sold better at Rogers stores compared to Bell and Telus.
• Motorola has managed to diversify its presence across Videotron and Freedom apart from the big three carriers, growing from a small base.

Please feel free to contact us at press(at)counterpointresearch.com for further questions regarding our latest
in-depth research, insights, or press inquiries.

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The post One in Two Smartphones Sold in Canada During Q2 2020 Was an Apple iPhone appeared first on Counterpoint.

The device was initially expected to launch during March 2020, but the launch was delayed due to factory shutdowns in China amid the ongoing COVID-19 outbreak. However, factories in China are nearing full capacity again. Apple and its manufacturing partner have done an admirable job bringing this device to market given that Chinese factories were closed for almost two months during the factory ramp-up phase. This is also an indication that upcoming Apple launches may also adhere to expected launch timelines, but we will have to wait and watch.

4G LTE iPhone Amid 5G Noise

While many markets have shifted focus to the 5G smartphone race, Apple delivers one last shot at a mid-range 4G LTE before finally shifting towards a 5G-heavy portfolio. Global network operators are focusing on the faster throughput speeds and the better economics of 5G networks, but we can’t overlook the fact that there remain many hurdles and work to be done. These include spectrum acquisition, investments for tower upgrades, and for years we will see patchy 5G coverage in many regions. Apple will have a 2-3-year window before a majority of 4G LTE users finally migrate to a 5G network, even in the developed markets. The iPhone SE taps this window of LTE opportunity for Apple. By foregoing 5G, Apple allowed the device to be priced at $399 instead of at least $450. It also would have been challenging to fit the extra 5G components into the SE’s tight, aesthetic 4.7” package. Finally, with the latest A13 Bionic CPU, Wi-Fi 6, and a modem that supports GB LTE, it will probably feel sufficiently powered to most users, even though it lacks 5G. The device is likely to be a mid-range “cash cow” for Apple for the next 2-3 years.

A13 Bionic Chipset to Drive the Consumption of Apple Services

The new Apple iPhone SE has a 4.7-inch LCD screen, Touch ID fingerprint recognition, and a design similar to the iPhone 7 and 8 series, with a single camera on the back. What makes iPhone SE 2020 stand apart from the crowd is the A13 Bionic chip. Having an A13 bionic chip inside the iPhone SE means that it now has one of the best-in-class chipsets, which is comparable or better than many Android flagships. Apple’s A13 was a large upgrade over the A12 chipset used in iPhone XR models. It is based on the 7nm chip architecture which is more optimized for machine learning operations. But why would Apple put its best-in-class chipset in a mid-range device? The answer:

• In Q1 FY20, Apple’s revenue hit an all-time quarterly high of $91.8 billion, up 9% YoY for the three months ended Dec 2019. Out of the total Q1 FY20 revenue, $12.7 billion came from its service segment which accounted for 13.8% of the total revenue.
• The old generation Apple iPhone 6S/7/8 models don’t have the hardware to support the latest services while delivering best-in-class user experience.
• Apple has tested its price elasticity and realized that marginally aggressive pricing can potentially generate a much higher “customer lifetime value (CLV)” over a period of 24-30 months.
• The A13 Bionic chipset will enable these users to get a taste of new services. 4K video recording, Smart HDR, Gigabit-class LTE and Wi-Fi 6 will act as a backbone to drive the overall consumption of services such as Apple Arcade, AR Apps, Apple TV+, Apple Music, while driving faster consumption of iCloud.
• According to Counterpoint, Apple can potentially generate a Customer Lifetime Value (CLV) of US$2,400 over a period of 30 months from a “power” iPhone user with the latest hardware, subscribing to its existing and new Apple services.

Source: Counterpoint Research, Ecosystem Analysis (2019)

Capturing the Mid-Range Demand with a Lean Portfolio

Although the market is rapidly shifting towards higher device specifications (including >6-inch display, multi-camera setups, 3D face unlock, AI features), there is still a segment of consumers who still feel more secure with a fingerprint unlock and a screen size that fits well in the palm. On top of that, some of these consumers are previous generation Apple users who are nearing the end of their device life cycle. These users are seeking high brand value with good performance without paying $1000 or more – especially in world in which normal economics have been altered by the coronavirus.

Apple iPhone SE will consolidate the demand for existing older generation iPhone 6/7/8 series models towards a single device – iPhone SE. This will also enable Apple to maintain a leaner 4G LTE portfolio while it transitions to 5G. Meanwhile, other global OEMs will face stronger competition from Apple in the mid-range. For example, iPhone SE will compete strongly with Samsung’s Galaxy A series, LG’s ThinQ series, Motorola Z series, and the upcoming Pixel 4a series.

North America, Europe, and Japan to be Primary Target Markets

A budget category Apple device is often considered as a device targeted for Asian and Latin American markets. However, these markets have shown modest uptake of existing Apple devices in the $400-$600 price band in the past. The aspirational value of the Apple brand remains high in these markets, but these markets have remained highly competitive and consumers tend to lean towards buying a device that offers higher specifications. The consumers in these markets also pay a significantly higher cost for Apple devices due to additional customs duty, currency fluctuations, supply issues, and other local taxes. For example, Apple iPhone SE is priced at $550 (approximately) in the Indian market. So iPhone SE may still end up competing in the premium category in these markets. Having said that, the iPhone SE may still manage to gain significant traction given its latest hardware.

Therefore, the primary target market of iPhone SE will be North America, Europe, and Japan. These are primarily the same markets where the iPhone 7, 8 as well as the iPhone XR series continue to rank among the best-selling models. But now, the availability of the new iPhone SE may leave some prospective iPhone XR buyers confused, as they may end up paying more but end up with an older A12 Bionic chipset. Also, the timing of the iPhone SE launch is not favorable. Carrier stores in North America, Europe and some other parts of the world remain closed due to the COVID-19 lockdown since mid-March 2020. This means Apple may lose out on some initial launch push, but sales will gradually pick up in H2 2020 if the COVID-19 situation continues to improve.

Overall, the device maintains a fine balance among device specifications, design, and pricing while keeping in mind the aspirations of a certain set of consumers. This will entice the mid-range consumers to upgrade without paying the premium cost for a new device while Apple gets an opportunity to capture more value over the lifetime of the device. At last, Apple should be able to capitalize upon its stellar hardware integration and the design “nostalgia” which lasted for more than three years and became the hallmark of Apple’s design finesse.

BONUS! Podcast – New iPhone SE: Powerful Apple Experiences at $399

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The post The Real Reason Why Apple Launched an iPhone SE on the Cusp of the 5G Era appeared first on Counterpoint.

But the decision on Huawei goes far beyond the company’s role in building the 5G network in Canada. The decision is likely to define the Canada’s political stance in the US-China trade conflict. Both US and China have been pushing to turn the decision in their favor.

Politics at Play

The decision comes amid ongoing diplomatic strife between Canada and China, while recent events also indicate some awkwardness between the US and Canadian heads of state.

Canada-China relations are on thin ice. In December 2018, Huawei’s global CFO and the founder’s daughter, Meng Wanzhou was arrested in Vancouver on suspicion that she had been involved in violating U.S. trade sanctions with Iran. Canada was bound to arrest her thanks to Canada’s extradition treaty with the US. Meng Wangzhou was eventually released on bail but has not been able to leave Canada and lives under house-arrest in Vancouver.

This event proved to be a turning point in the China-Canada relationship. In July 2019, China retaliated by arresting a former Canadian diplomat and a businessman in China on espionage charges. Another two Canadian citizens were arrested, and who still remain under threat of trial in China without access to lawyers. Later, China also blocked imports of canola seeds from Canada. In view of the events, the Canadian government has formed a committee to review its relationship with China.

Canada’s relationship with the US is also under strain. At the NATO summit in December 2019, US president Trump described the Canadian prime minister “two faced” concerning Canada’s low contribution to defense spending. And Trudeau was filmed apparently joking about Trump with other NATO leaders.

Since 2016, the Trump administration has been threatening to pull-out of the NAFTA agreement that eliminates most trade barriers between the US, Canada and Mexico. Such a move would be harmful for the Canadian economy.

The US Continues to Mount Pressure on Canada

The decision regarding Huawei’s potential involvement in 5G is likely to be one of the toughest for the newly re-elected government. The criticality of the situation can be gauged by the Canadian government’s move in July 2019 to delay the decision on Huawei’s participation until after the federal elections in October 2019.

At an international security event in Halifax, Nova Scotia, in November 2019, the US national security advisor, Robert O’Brien, commented that having Huawei infrastructure in Canada’s 5G network would be like a “Trojan Horse” compromising national security and potentially enabling espionage.

He said, “Huawei trojan horse is frightening, it’s terrifying. When they get Huawei into Canada (through 5G) or Western countries, they’re going to know every health record, every banking record, every social media post; they’re going to know everything about every single Canadian. I find it amazing that our allies and friends in other liberal democracies would allow Huawei in.”

Canada is a part of the decades old intelligence-sharing network – The Five Eyes, which comprises the US, Australia, New Zealand and the UK, as well as Canada. The US government representatives have indicated that intelligence sharing will be impacted if Canada chooses to allow Huawei to build the 5G network in the country. So far, the US, Australia, New Zealand have taken a strong stance against Huawei, completely banning its participation in building the 5G network, while the UK has allowed Huawei in non-sensitive (other than network core) infrastructure.

Why China and Huawei are important to Canadian economy?

China is Canada’s second largest export partner accounting for 4.3% of its exports, worth more than $20 billion each year.  Top export categories include wood pulp, oil seeds and soybeans. China is also one of the most important import partners, accounting for 12.6% of total Canadian imports, worth $71 billion. Among imports, most popular product categories include computers, telecom equipment, smartphones and accessories. These numbers make the trade deficit between Canada & China, slightly bigger than Canada’s overall annual trade deficit.

China is also a significant source of capital flows in Canada’s real-estate market. According to National Bank of Canada estimates, Chinese homebuyers accounted for one-third of Vancouver’s real-estate market by value during 2015, spending approximately $9.6 billion of the $29 billion of total real-estate sales. Patterns are similar in other metropolitan areas in Canada, including Toronto, which is also counted among one of the costliest cities in North America.

Furthermore, Huawei has heavily invested in Canada since 2008. Out of Huawei’s 21 R&D centers worldwide, six are in Canada, compared to three in Japan. Canada has also benefitted from Huawei relocating its US workforce to Canada. In 2019, Huawei Canada announced a 15% hike in its CAD$180 million R&D budget, already one of the highest in Canada, and the hiring of an additional 200 engineers, a one-third increase in its Canadian R&D workforce.

But apart from the financial and strategic importance of China and Huawei, Canada is also locked into a free trade agreement (FTA) with China. So, breaking an FTA would have further repercussions and would mean a direct conflict with China at the WTO.

What’s at Stake and Position of the Big Three Carriers

Huawei has earned a reputation for making high-quality network equipment, with significantly lower costs than its competitors. Its strong R&D spend has ensured strong intellectual property within 5G portfolios with more than 2,700 patents; a higher number than its competitors, though questions remain about the nature of all the patents. Huawei also leads in 5G base station shipments globally, though again, it’s early days in 5G roll-outs.

Canada already has among the costliest mobile data rates globally, so keeping Huawei out would likely imply an uptick in capital expenditure for the Canadian carriers. Cost increases would either hit carriers’ bottom-lines or be passed on to consumers.

At present, Bell and Telus both use Huawei equipment, while Rogers uses Ericsson equipment. In February 2019, Telus stated that Huawei had been good for Canada and that a ban on its 5G wireless network could potentially add costs and delays to its rollout. A 5G ban without compensation or other accommodation could lead to a “material” increase in the cost of Telus’s 5G deployment.

Meanwhile, Bell Corp. which shares infrastructure with Telus indicated that a decision on Huawei was unlikely to impact its short-term capital expenditure or 5G launch plans. In February 2019, George Cope, the CEO of Bell Canada, said,

“It’s important to know we’ve made no selection yet of our 5G vendor, and if there was a ban or if we chose a different supplier than Huawei for 5G, we’re quite comfortable all those developments would be addressed within our traditional capital intensity envelope, and therefore no impact from a capital expenditure outlook. Nor would the government decision affect the timing of Bell’s 5G service. No launch date has been announced. Bell is doing 5G tests.”

Another one of The Big Three carriers in Canada, Rogers Communications, has already decided not to use Huawei equipment and is going ahead with its current partner, Ericsson. The company executives have been quite vocal about limiting the role of Huawei in Canadian network infrastructure.

So, considering the current political scenario and rising anti-China sentiment, it makes the situation look unfavorable for the Chinese telecom equipment giant. Allowing Huawei to participate as a 5G vendor will put pressure on Prime Minister Justin Trudeau, who runs a minority government and has already been accused of a soft stance towards China. But Trudeau’s administration will remain wary of Chinese aggression and potential repercussions that the decision will entail to the Canadian economy. So a compromise approach, like that of the UK, remains a strong possibility. At the same time, the Canadian government cannot afford to infuriate the US administration, as the stakes are even higher with its neighbor.

The post Canada’s Decision on Huawei, a Defining Moment in Relationship with China appeared first on Counterpoint.

In 2019, OEMs are taking the battle a step ahead with a triple camera setup now becoming popular. Almost 6% of smartphones sold globally had three or more rear camera sensors in March 2019. This figure is likely to go up to 15% by the end of 2019 and 35% by the end of 2020. We expect that by the end of 2021, 50% of the smartphones sold globally will have three or more camera sensors.

More than 40 smartphones launched as of April 2019 had three or more cameras. Among these, 30 launches were in Q1 2019. The Huawei Mate & P series, the Samsung Galaxy A series, the new Galaxy flagships, and the Vivo V15/Pro are some of the existing models driving the triple (and more) camera sensor penetration. We expect other OEMs, including Apple and OnePlus, to join the bandwagon later this year.

Source: Monthly Market Pulse: March 2019

Similar to dual camera adoption trend, the triple camera fixture initially featured in the higher priced smartphones. However, towards the end of 2018 and early 2019, even smartphones in the affordable premium and mid-tier price bands featured three or more cameras. The triple camera setup enables new camera intensive features such as 50X zoom, AI-based photo optimization, and depth effect. Features such as bokeh, telephoto zoom, portrait mode, wide-angle photos, have now become standard. Overall, the focus on camera as a differentiating factor is likely to enhance the cooperation among camera lens, module, and AP manufacturers to achieve higher optimizations.

Key Highlights

• We can expect smartphone OEMs to launch models with 64MP and more in H2 2019. In 2020, we expect smartphones with camera resolutions of 100MP and more.
• Huawei and Samsung are leading the adoption. Samsung is a big adopter of the three or more camera setup, especially in its models in the affordable-premium price bands. Apple launches later this year are also expected to give a boost to the category.
• Triple camera penetration in mid-premium (US$600-US$799) and premium (>US$800) price band is also expected to grow rapidly with the launch of the Samsung Galaxy S10 series and the Huawei P30 series.
• Google does not even have no dual cameras on its flagship Pixel phones and was relying on the stellar image quality through software. However, with the premium segment increasingly adopting dual camera sensors, Google will be under pressure to integrate this into their upcoming flagships.

Supply Side Insights:

• 5MP camera image sensors (CIS) remain in tight supply as they’re essential for triple camera phones. This is likely to continue in case of 5MP and 8MP camera sensors.
• SK Hynix is a key supplier likely to benefit from the adoption of three or more cameras. However, supply may remain a significant issue, creating room for other suppliers such as Samsung.
• Sony is another key high-quality supplier for camera image sensors specializing in the 13MP camera setup, which is already going through capacity expansion in Japan. This is likely to suffice for the surging demand.

The latest Monthly Market Pulse report for mobile phones is published here.

The post Triple Camera Penetration Among Smartphones To Cross 50% by 2021 appeared first on Counterpoint.

New Delhi, Hong Kong, Seoul, London, Beijing, San Diego, Buenos Aires – June 18^th, 2019

Young Indians, under 35 years of age, accounted for 89% of the total Indian OTT video content platform users, according to Counterpoint Research’s India OTT Video Content Market Consumer Survey. Among young users, the age groups of 16-24 and 25-35 contributed equally to the overall market. Male users account for 79% of the total users.

Overall, Top 5 metro cities account for 55% of the total OTT video platform users, while Tier I cities account for another 36% of the users. As per the survey, Hotstar leads the Indian OTT video content market, followed by Amazon’s Prime Video, SonyLIV, Netflix, Voot, Zee5, ALTBalaji, and ErosNow in terms of the percentage of respondents subscribed to each platform. Production house-backed local OTT players, such as SonyLIV, Voot, Zee5, ErosNow, and ALTBalaji, are also competing with foreign players such as Amazon’s Prime Video and Netflix. The market remains highly focused on the ad-based model (AVOD), where advertisements drive revenues. However, subscription-based market (SVOD) continues to grow significantly.

In terms of engagement, Counterpoint Research survey found ErosNow users were the most engaged users, with 68% of its users indicating that they watch content on the platform daily. The platform continues to thrive through partnerships. In India, it partnered with Xiaomi for pre-installation on smart TVs. ErosNow has the highest percentage of its users consuming content on Smart TVs. A total of 27% of ErosNow users watch content on Smart TVs. ErosNow also remains the only major Indian OTT platform to partner with Apple for its’ new Apple TV+ service which will launch across the globe later this year. Further, our survey revealed that 9% of ErosNow’s users see content on the platform for more than 21 hours a week. This is the highest among all other OTT platforms in India.

Exhibit 1: Engagement Levels of OTT Users

Source: India OTT Video Content Market Survey

Commenting on the findings, Senior Analyst, Hanish Bhatia said, “India is a young country and OTT video market is a very competitive space in India at present. Platforms are focusing on price innovation, content creation and acquisition, and partnerships as the engine for growth. The low cost of mobile data and affordable smartphones have revolutionized overall video content consumption in India. However, OTT platforms have struggled to register profits, creating an environment ripe for acquisitions or exits. Having said that, new players continue to enter the market as it is expected to record double-digit growth from subscription revenues during the next five years.”

Key Insights:

Overall Market Demographics:

• Salaried employees are the largest consumer group of OTT users, followed by students, business owners, housewives, and others.
• More than one-third of the respondents indicated that they’re inclined to use free services only, while another one-third indicated that they’re paying for the subscription. Remaining respondents were either on a trial period or indicated that their friend or family pays for the subscription cost.
• The smartphone is the most popular device for OTT video content consumption. Xiaomi is the most popular smartphone brand among OTT users.
• Jio is the most popular network among OTT users in India, followed by Airtel and Vodafone-Idea.
• The most preferred language for video content is Hindi and English. Among regional languages, Telegu was found to be most popular, followed by Punjabi, Bengali, Marathi, Tamil, and others.
• Action and Comedy are the most preferred genres. While preference for Action was highest among male users, Drama and Romantic genre content was found to be most popular among female users.

OTT Video Content Platform Analysis:

• Local player Hotstar leads the market at present, with a sharp focus on cricket and content partnerships. According to our survey, 56% of Hotstar’s users hail from metro cities. The platform also has the highest penetration of non-paying users.
• Netflix and Amazon’s Prime Video were found to be highly popular in metros. Top 5 metros account for more than 65% users of these platforms. This was highest as compared to all other major platforms. These two platforms also have the highest penetration of salaried employees.
• However, SonyLIV scores highest among Tier-I cities. More than 40% of SonyLIV users are from Tier I cities.
• Voot has the highest penetration of female users. It also has the highest penetration of young users aged between 16-24 years.
• ALTBalaji scored highest among 25-35 age group users, which account for 59% of its users. Also, the platform is highly popular in Kolkata, with more than one-third of its users from Kolkata alone. This was the highest among all major platforms.
• ErosNow has the largest share (59%) of its users in the 25-39 age bracket in Tier II/III cities, highest among all major OTT platforms.

Background:

This is a primary consumer survey conducted by Counterpoint Technology Market Research through an online platform. More than 4,000 OTT users participated in the survey which was conducted across Top 25 major cities across India. The survey focuses on OTT video consumer demographics, platform consumption trends, content preferences, content consumption patterns, device and network analysis. Key platforms included in the were Hotstar, Amazon’s Prime Video, SonyLIV, Netflix, Voot, Zee5, ErosNow, ALTBalaji, YuppTV, Viu, DittoTV, Hooq, Arre, and Spuul.

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HARDWARE

Google’s Pixel Family & Ambitions Expand

• Google has introduced two cheaper or Lite versions of existing Pixel 3 and Pixel 3XL – the Google Pixel 3a and Google Pixel 3a XL priced at US$399 and US$499 respectively.
• The launch also marks Google’s ambitions to expand the organic Pixel portfolio with a wider distribution reach starting with the US spreading across multiple carriers such as T-Mobile, Sprint, US Cellular, compared to just Verizon in the past.
• Also launching in other 12 countries simultaneously – Australia, Canada, France, Germany, India, Ireland, Italy, Japan, Singapore, Spain, Taiwan, and the United Kingdom.
• In terms of hardware, it is powered by Qualcomm Snapdragon 6 series 670 SoC from last year which features Qualcomm’s Artificial Intelligence Engine (AIE) but unlike the latest Snapdragon 6 and 7 series chipsets which pack in more capabilities.
• Google Pixel 3a series is positioned to attract the mid- to high- tier segment with Google Pixel portfolio’s USP (or ultimate selling points) being – Latest Pure Android Experience, Faster Security & Software Updates, Google’s flawless AI capabilities out-of-the-box, Augmented Reality (AR) Core ready, eSIM (Google Fi), Titan M Security Module and above all the 12.2 MP dual-pixel Camera experience with features such as NightSight, Motion AutoFocus, HDR+ and Unlimited High Quality photo Cloud storage
• The Pixel 3a should perform relatively well in the US and some other markets compared to predecessor Pixel portfolio. However, the high-tier segment is the US is a tough sell as the market is quite polarized and dominated by premium and low-to-mid tier portfolios
• Pixel 3a needs to succeed in the US, which is a critical market for Google to first break into with its hardware ambitions considering the higher advertising ARPU from the American user-base.
• If Pixel 3a succeeds in the US, it will expand the shrunk high-tier price segment though it will have to compete with older generation flagships from Samsung, Apple and new generation affordable premium phones from likes of OnePlus which are making their mark in the US.

Google’s Smart Home Positioning with Nest

•  Google Home smart home devices will now sell under the “Nest” brand.
• As a result, Google’s Home Hub will now be called the Nest Hub. Alongside the rebranding, Google launched a new smart display with a camera called the Nest Hub Max.
• It supports Google Duo video calls and has all the features of the previous generation Google Home Hub.
• The Face Match feature in Next Hub Max will show calendar updates for the user in front of the device by recognizing the face through the locally stored encrypted data.
• The device will act as a control device for other connected smart home products from third-party smart speakers, gaming consoles, smart lighting, smart locks and especially tightly integrating with Nest portfolio such as Thermostats, Bell, Security cameras.
• It will also support a few gesture control features, such as controlling music/videos using hand movements.
• Nest Hub Max will cost US$229, and it will be available in the next few months.
• The Nest branding and higher penetration in the US market could make Google more attractive to consumers compared to Facebook’s Portal or Amazon’s Echo Show, though Amazon is moving in a similar direction with the US$1 billion Ring acquisition from last year.

SOFTWARE

Android Q

• Google says there are 2.5 billion active Android devices with the majority being smartphones which translate to roughly 60% share of the total active smartphones globally.
• These users can now expect their smartphone activity to become even more secure.
• Google announced that innovation, security & privacy, and digital well-being will be the key themes of the new Android release, which is called the “Android Q”.
• Google Maps and Google Search will finally feature an incognito mode. On the security aspect, the two-step verification feature will now be available for all Android smartphones.
• The new version of Android will also have more parental control options.
• Google claims to have added more than 50 new features focusing on privacy and security in the Android Q update.
• Further, Android Q is ready for the next generation of smartphones, which will feature foldable screens and 5G connectivity.
• Google has closely worked with Qualcomm to dynamically optimize the apps running a Qualcomm powered 5G smartphone in terms of performance (e.g., switch to faster frame-rates, higher resolution graphics streaming, optimized battery life, etc.) whenever the Android Q based 5G smartphone connects to a 5G network
• Google says 20 carriers are expected to go live with 5G networks this year and over a dozen 5G-ready smartphones will be launched by the end of 2019. Counterpoint also forecasts the 5G ecosystem to blossom faster than previous generation rollouts.
• For devices with foldable screens, Android Q will have a screen continuity feature that will allow a seamless app and gaming experience while switching from a folded screen to the unfolded screen, and vice-versa.
• Android Q will also feature a Focus Mode, which disables distracting apps until you want to use them again. The feature will be available in Android Pie and Android Q later this year.
• The new OS will also have a Smart Reply feature which will provide intelligent suggestions to minimize navigation through different screens. For instance, if someone sends a meeting request with an address, the smart reply feature will provide options to agree to the meeting as well as the option of opening the address in maps.
• It will also have the option of choosing a dark mode, which will help minimize battery consumption.
• Android Q beta 3 is now available on 21 devices, including the Pixel devices.

AUGMENTED REALITY (AR)

• New features & integrations in Google Search: A feature called “full coverage” will be available in Google Search, starting later this year. It will provide in-depth details of the searched event from multiple sources. Podcasts will also be available. Google will also add AR features such as bringing 3D models searched on Google into the real world, using the camera.
• Integrating Assistant, Photos & Camera on Google Lens: Google is indexing the physical world using Lens. New features will combine the power of Google Assistant, Camera and Photos to solve real-life use cases. For instance, Google Lens will read a signboard in the preferred language and even make recommendations by pointing the camera on a food menu. User can choose the mode of output, such as hearing the recommendations or reading the translated signboard in the preferred language. These features will be available in Google Go, a search app for entry-level smartphones.

ARTIFICIAL INTELLIGENCE (AI)

• Google Duplex to Minimize Transaction Complexities: With Duplex, Google is trying to remove transaction complexities for the actions we perform on our smartphone. In a nutshell, Duplex performs basic tasks for the user. Initial testing for Duplex was for making restaurant reservations, but now Google is extending Duplex capabilities to a web search. The feature will intelligently navigate through required actions pages for finishing the desired task. For instance, it can make bookings by intelligently choosing and auto-filling user details (including payment), and finally making a booking, while the user remains in control using only voice. More detail on this will be out later in 2019.
• Advancements in Speech Recognition: Speech recognition is a combination of models, that translate sound bytes into phonetic units, assemble phonetic units into words, and predict the likelihood of their sequence. Such models are complex and require more than 100GB of storage and network connection. Google announced that it has been able to shrink such complex speech recognition models from 100GB to 512MB, allowing these models to be available in a smartphone locally. This eliminates network latency and makes assistance super-fast, which finally eliminates the need for tap-and-touch interface. Google demonstrated multiple voice requests made on the new Assistant, which was much faster than normal tap-and-touch control system. The new assistant is coming to Pixel phones later this year. It will also be available in the Waze navigation app, with driving-friendly features.
• Live Captions and Live Relay: A new on-device feature “Live Captions”, will allow users to turn on captions for any podcast or any video including even self-recorded videos. Meanwhile, another feature “Live Relay” will allow hundreds of millions of hearing-impaired people to have voice calls by converting the written text to speech and vice-versa. These features again were achieved by shrinking the storage requirements of such complex models to a fraction.

MACHINE LEARNING-AS-A-SERVICE (MLaaS)

• Google announced its third generation Cloud Tensor Processing Units (TPU) Pods; each Pod made up scalable 1000 TPUs which can deliver upto 100 petaFLOPS.
• Google will let developers rent “slices” of the machines formed with these powerful TPU Pods for quick training of large ML models (e.g., image classification) in just a few minutes.
• Basically, Google has transformed this into an on-demand (MLaaS) Machine Learning-as-a-Service.
• Google is competing fiercely in AI, cloud computing and server space with more integrated self-developed solutions to differentiate with competitors.

Overall, this year’s I/O focused more on Google’s growing stance on Security & Privacy, democratizing AI for the masses and showcasing its hardware ambitions to scale the Google services faster and better than its partners. This messaging is very similar to Satya Nadella’s new Microsoft has been sharing for the last few years. For Google, with its data-driven and more so consumer-centric advertising business model its more difficult to convince the various stakeholders in the tech space. But this is a step in the right direction to position itself better than the rival Facebook, which continues to struggle with its missteps on this front.

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    New Delhi, Hong Kong, Seoul, London, Beijing, San Diego, Buenos Aires – April 9, 2019

 A total of 6.8 million construction machines with embedded connectivity will be sold during 2018-2025, according to the latest research from Counterpoint’s IoT Device Tracker Service. This would mean the global Internet of Things (IoT) Construction Equipment market will grow at 25% CAGR through 2025. Construction equipment includes off-road construction equipment like earth-movers (excavators and loaders), material handlers (cranes), off-road trucks, and machines used for activities like road construction and mining.

In 2018, Caterpillar had the highest market share, followed by Komatsu and Hitachi. Caterpillar partnered with AT&T to provide 4G LTE connectivity to its customers across the globe. AT&T provides a global SIM Card in addition to IoT management services to track, manage, and deploy asset connectivity across 155 countries.

     Exhibit 1: IoT Construction Equipment Share by Brands in 2018E

Source: Global Cellular IoT Device Tracker 2018-2025

Construction equipment OEMs introduced embedded telematics systems using wireless cellular communication technology, either independently or in partnership with third-party aftermarket telematics players. Key aftermarket telematics players include Trimble, Telogis, Heavy Construction Systems Specialists, Orbcomm, Geotab, Zonar Systems, Teletrac, Navman Group, ACTIA Group, LoJack, The Morey Corporation, TelliQ, and others. Typically, OEMs are embedding heavy construction machines with a cellular modem, while access to services is complimentary for three to five years.

Commenting on the findings of the study, Senior Analyst, Hanish Bhatia said, “Traditionally, satellite communication dominated this space, but OEMs have shifted to cellular connectivity in the past few years. OEMs are partnering with third-party aftermarket telematics firms, which provide end-to-end telematics solutions. Remote diagnostics, maintenance, fuel consumption, and other machine usage trends, remain the key application areas.”

Adding his perspective, Research Analyst, Satyajit Sinha noted, “IoT connectivity is critical when it comes to heavy construction machinery. The technology helps fleet owners keep track of machine downtime, resulting in significant cost savings. Also, safety remains a key issue at construction sites and connectivity has helped companies minimize accidents. We expect most OEMs to adopt embedded cellular connectivity across their products by 2025.”

The comprehensive and in-depth report on “Global IoT Construction Equipment Forecast: 2018-2025” is a part of our Counterpoint’s IoT (Internet of Things) Service. This report is available for download here.

Background:

Counterpoint Technology Market Research is a global research firm specializing in Technology products in the TMT industry. It services major technology firms and financial firms with a mix of monthly reports, customized projects and detailed analysis of the mobile and technology markets. Its key analysts are experts in the industry with an average tenure of 13 years in the high-tech industry.

Analyst Contacts:

Hanish Bhatia
+91 9871849857
hanish@counterpointresearch.com

 Satyajit Sinha

satyajit@counterpointresearch.com

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    New Delhi, Hong Kong, Seoul, London, Beijing, San Diego, Buenos Aires – March 25, 2019

The smartphone market in the Philippines grew at 4% year-on-year (YoY) in 2018 due to aggressive marketing from Chinese brands, according to the latest research from Counterpoint’s Model Sales Tracker service. After a slow start in the first quarter of the year, smartphone sales recorded YoY growth in the remaining quarters.

Commenting on the findings, Associate Director, Tarun Pathak said, “Chinese brands, especially Huawei, Vivo, and OPPO have gained significant mindshare among Filipinos. Aggressive marketing, association with celebrities and retail merchandising has helped them gain a foothold in the market. Meanwhile, local brands continue to decline in terms of shipment and their target category has been restricted to the sub-US$100 price band. This is also consistent with market conditions in neighboring South East Asian countries.”

China’s HOVX (Huawei, OPPO, Vivo, and Xiaomi) together captured 43% of the smartphone market in 2018. Huawei’s performance was the most impressive. It captured 11% market share with the popularity of its Y6 2018 and Nova 3i.

While smartphone sales increased, the overall handset market fell 11% YoY due to a 39% YoY decline in feature phone sales. In fact, 77% of the total handsets sold in 2018 were smartphones.

Commenting on the pricing strategies, Senior Analyst, Hanish Bhatia added, “The market moved towards higher price bands in 2018 as first-time smartphone users upgraded. Easy financing options are also enabling Filipinos to purchase smartphones in a higher price range. In 2019, competition in the entry-level and budget category is expected to intensify further with more Chinese brands targeting this price band.”

Exhibit 1: Philippines Smartphone Shipments Share by Brands

Source: Counterpoint Research: Model Sales Tracker CY2018

Market Summary:

• Samsung captured nearly one-fifth of the total smartphone market, closely followed by Cherry Mobile. Galaxy J series remained extremely popular, especially Galaxy J2 Prime.
• Cherry Mobile remains the second largest brand in the Philippines, driven by Flare series. Flare J3/J3 Lite remained the most popular entry-level smartphone.
• Overall, the sub-US$100 price band captured nearly 44% of the smartphone market in 2018, as compared to 56% last year. Meanwhile, US$100-US$249 price band accounted for 42% of the smartphone market in 2018, as compared to 34% during last year.
• The Chinese onslaught has led to a significant decline of local brands, such as Cherry Mobile and MyPhone. China’s HOVX brands also managed to marginally dent Samsung’s market share.
• Apple’s share continues to decline in the market, due to its higher pricing. However, it still managed to capture 2.5% of the smartphone market driven by sales of previous generation iPhone models.
• The telecom operators Smart (PLDT) and Globe continue to invest in infrastructure to deploy LTE base stations to across the country. Improved network coverage along with rising social media and content consumption is driving smartphone sales among young consumers.

The comprehensive and in-depth CY2018 Model Sales analysis is available for subscribing clients. Please feel free to contact us at press(at)counterpointresearch.com for further questions regarding our latest research, insights or press enquiries. The Model Sales research is based on sell-through estimates based on vendor’s IR results, vendor polling triangulated with sell-in (shipments), supply chain checks and secondary research.

Analyst Contacts:

Tarun Pathak
+91 997-121-3665
tarun@counterpointresearch.com

Hanish Bhatia
+91 987-184-9857
hanish@counterpointresearch.com

Follow Counterpoint Research
press@counterpointresearch.com

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The evolution of such a technology is important to all businesses under the e-commerce umbrella. Apart from fraudulent activities through credit card or SIM cloning, millions of goods are also left unbought due to the long and complex payment authentication process. This is a huge opportunity loss for the seller as well as each company involved in the value chain of the payment process, including the payment gateway provider as well as the bank issuing the credit card. In such a case, the payment authentication system acts a bottleneck for successful transactions.

Behavioral profiling has various applications in authentication and security, as it profiles unique behavior comprising physiology and other factors including social, psychological, health factors, etc.

User Behavior Tracking on Touch-Based Devices

• Various web services track clicks and mouse cursor activity on web pages and search engines, but in touch-based interfaces such as smartphones, a cursor doesn’t exist, and touch events don’t represent user interest correctly.
• On small screens, users move the viewing area left-right and up-down to read through the text. Users also zoom in/out to switch among overall layout and enlarge the content of the page to be examined. Thus, tracking these user behavior metrics creates multiple insights.
• A display can track the user’s behavior of viewing different areas of content and the duration the user spent in each area through bounding boxes and heatmaps. This creates a visualization of the parts of the web page the user focused on.
• A short dwell-time in a particular region indicates low-user interest, while long dwell-time indicates the user read through the written content in the region.
• The information can be used for advertising, user profiling, and web-page analysis.

Real Life Implementations

Appsee is one such analytics platform. It provides visual screen usage analytics solutions to clients. The platform records the user interaction with the app and provides information through heatmaps, user flow charts, user navigation path, and other information. Touch heatmap analytics aggregates various gestures used during the interaction with the app, including taps, double-taps, swipes, pinches, etc. The heatmap is shown as a layer placed over the actual app screenshot, making it easier to analyze the interaction with the app. The frequency of interactions is color-coded. The information is useful for app companies to realign the user interface of the apps.

BioCatch, another US-based behavioral authentication, and threat detection solutions firm, partnered with Samsung SDS to integrate behavioral biometrics to detect fraud on popular mobile apps. The app profiles users based on different behavioral metrics such as the angle the phone is held, swipe/scroll patterns, and other behavioral attributes. When unusual behavior is detected, the app raises a red flag and implements additional security measures. According to BioCatch, a combination of behavioral biometrics and other new forms of phone-based ID verification (such as fingerprint and Face ID) will eventually replace the password as a form of security.

With credit and debit card transactions increasingly taking place through smartphones. Companies like Mastercard are investing in behavioral biometrics. In March 2017, Mastercard announced it was acquiring NuData Security, a global technology company that helps businesses prevent online and mobile fraud using behavioral analytics. NuData offers solutions which incorporate biometric, behavioral and device metrics to flag security violations and verify trusted users.

The Regulation Roadblock and Future Outlook

For now, behavioral biometrics are at a nascent stage. As more payments are made through smartphones, the banking and finance sectors are increasingly likely to seek to leverage smartphones sensors to aid in authentication. Meanwhile, user data protection and regulations like GDPR may act as a roadblock to the use of the technology. In this case, the technology can act as an additional layer, if not the core authentication system.

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