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Spillikins №145. Apple iPhone 4s: Short Supply or Lack of Demand?

As usual, I have had a hectic week but luckily there were not a lot of big news. December, on the other hand, has all the chances of becoming the hottest month for the market although most events will pass unnoticed by common public. The Nokia 800 sales will determine how big a share Nokia will lose in the first six months of 2012. Yes, it’s not a typo. Nokia’s flagship WP7 sales will determine how fast the company will be losing the market. There are different scenarios for this but they are all pretty gloomy for Nokia. Anyway, let’s get to the big stories.

Apple – Rumors of Production Issues and iPhone’s Bad Battery

The Apple versus the world war is entering a new stage. Until recently Apple was battling in courts and with suppliers for the lowest possible prices for parts. But now the adversaries take any opportunity to strike first. The latest blow came from Asia – the digitimes.com published an article stating that Apple has postponed parts shipment dates from suppliers from Q4 2011 to Q1 2012 because the actual demand for iPhone 4s is lower than had been expected. The original article here.

This little piece of news became a real bombshell and the market immediately split in two. A number of analysts called the news groundless rubbish while others tried to make market forecasts based on this news. This story illustrates the phenomenon when in a situation when there is not enough data many people instead of trying to analyze turn into circus fortune tellers. But let’s have a look at the facts.

On the first weekend 4 million Apple iPhone 4s handsets were sold in the US (according to Apple’s press release). The company saw highest sales on record and there is still short supply of iPhones. I believe these facts are sufficient to bus the myth about low demand for iPhone 4s. Of course, as usual iPhone as well as Apple itself spawn controversial feelings among users ranging from admiration to contempt. Apple haters enjoy every faux pas of the company and that’s probably why the rumors about low demand for iPhone and iPad 2 became s so popular so quickly even though there are no objective reasons to believe them.

Let us now look at the situation from a different angle. The company cancelled a number of parts shipments and decreased the batch quantities. Why could this happen? The usual reason is lack of demand but as we already know it is not the case here.

I am pretty sure that Digitimes provided valid information and Apple actually did reduce batch quantities on Taiwan. However, Digitimes cannot know Apple’s every supplier and they can only guess about the reasons of changes in Apple’s orders. I think that the reason lies in the battery issues in Apple iPad 2 and iPhone 4s the company has recently admitted. Most of the reports concerned the iPhone and not the tablet. The company reacted swiftly to the public complaints about iPhone running out of juice in just a few hours. Apple soon released the 5.0.1 update but some people continued to experience problems with the battery charge. Apple assured users that they are investigating the reasons of the issue and promised the 5.0.2 update soon.

The battery issue might have been caused by both software and hardware reasons. There can be a lot of reasons why certain phone’s components do not operate as designed. In this case software updates might be completely useless. Apple simply cannot admit hardware faults in the iPhone since it would mean massive recalls and great financial losses. So the only right way for them is to quietly and without any media hype replace faulty units in service centers and change the production process accordingly.

Let’s now see how it can be done in practice. iPhone 4 and iPhone 4s use similar hardware only the old one uses the hardware that the company has been buying for a year now. The demand for iPhone 4 8GB is huge and it is still in short supply because it is the cheapest model of the family (of the fourth gen and the size of the storage is the only difference between them). The new iPhone 4s uses some new hardware Apple’s new suppliers provide. Apple place orders for parts in October or may be even earlier. As a result, batch orders for the old suppliers go down or being postponed till the next year while analysts have not yet learnt about the new suppliers and their batch orders. This is my version of the situation – when the two iPhones receive a detailed comparison of their hardware we will know whether I am right.

I cannot think of another valid scenario that would explain order cancellation or postponement. None of the other manufacturers reported supply shortages of screens, memory, CPUs etc. So Apple has all components in sufficient quantities which means that there is no reason to cancel shipments. And since the company does postpone shipments from known suppliers it probably means that they have got new suppliers. Anyway, we’d better wait till February when Apple will report on Q4 2011 then we will know for sure that there were no drops in demand. I am 99% sure this is true (I leave 1% just in case).

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The First Gen iPod Nano Battery Defects

Meanwhile Apple quietly recalled all iPod Nanos of the first generation (2005). Currently, they sell iPod Nano 7th gen. The recall was caused by cases of overheating of the battery that may lead to explosion. The issue concerns units produced from September 2005 to December 2006. The company stated that faulty batteries came from a single supplier. Apple generously offers to replace your old 1st gen Nano with a brand new one here.

The issue is not that big but there is an interesting aspect in this story. Big companies hate being pressured to make decisions especially to recall products. This iPod Nano case deserved a total recall because of the Japanese government or the Ministry of Economy, Trade and Industry (METI) to be exact. Japanese officials reported 60 cases of faulty goods and 4 cases of spontaneous combustion of iPod Nano 1 in 2010. The Japanese minister of economy made Apple recall the players in August 2010 and release a comprehensive statement concerning the issue because he found Apple’s initial reaction to the complaints unsatisfying. In the beginning Apple was only offering battery replacement but after minister’s address they launched a total recall program on August 11 2010.

The reason they launched same recall program for the rest of the countries 14 months later in November 2011 is because Apple is good at calculation and they try to minimize their losses. If you bought an iPod Nano in 2006 then by now the battery’s life cycle sure is over especially if you used the player a lot. There are only a handful of the first gen Nanos around so the company’s losses for recalling them are insignificant.

Back then the first Nano was released it was a breakthrough – the tiny stylish player immediately became a hit. I could not find any specific numbers on its sales but they were impressive. It’s funny but iPod Nano had quality issues from the start. In the first year it turned out that the plastic that covers the screen is very scratch prone. Apple was ignoring the problem for almost three years but then offered owners a free case for their players, a bit later in 2009 they offered $25 of compensation for every unit ($15 to users who received a case). The total compensation amounted to $22.5 million so if we divide the two numbers we will see that the recall concerned about a million units.

This story also correlates with the iPhone 4s issues and how Apple’s ways of dealing with such issues and that is quietly and covertly. They try not to admit issues for as long as possible until finally the public forgets about it. And so far their method has been doing great and even iPhone 4 antenna issue (probably the biggest quality issue in the history of Apple) was amazingly very soon forgotten and did not affect the sales.

Further reading:

Complaints on the latest gen iPod Nano (humidity issues and free replacements)

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Microsoft Wants to Fix Nokia Until It Gets Broken

The bulk of Nokia top managers are now people from Microsoft and they keep on actively changing the corporate structure, which took decades to establish. In a recent interview to the Inquirer the Head of Apps and Partnerships Department Keith Varty said: “Now we are working in conjunction with Microsoft, the game changes. The way we reach out to developers needs to change. Microsoft has a good reputation in the developer market and we want to add to that."

I am shell shocked. The company (Nokia), which failed to come up with anything valuable for third party developers in years, will teach the leading software manufacturer (Microsoft)? They must be kidding. Unfortunately the strongest point of Nokia is far from the app world, but people who run it now have no experience elsewhere and believe they are employed by another Microsoft, which only needs fixing. They are trying to repair it until it gets broken to pieces. The stupidity of recent Nokia decisions is unparalleled in history.

On November 2 the company proclaimed with fanfare that in the next generation WP7 models it will use the ST-Ericsson chipset. It was merely a PR operation, because Nokia failed to mention that ALL manufacturers of WP7 solutions will do the same (there is no pressure from Microsoft and Nokia had to make the choice independently). Before Microsoft was planning to use hardware from Qualcomm, but now there is a second supplier - ST-Ericsson. At Ericsson Capital Days people from ST-Ericsson clearly indicated that the future strategy will be to cooperate with many companies offering WP7 phones. In other words, Nokia cannot be unique here.

Until now Nokia did not get a single concession. Its WP7 has no specific features. Moreover, Microsoft is in no rush to help its key partner. For example, Nokia is dreaming to switch Symbian developers to WP7 platform. It requires seminars and training programs, but Microsoft has nothing in place and postpones it month after month. Smarter or more flexible developers have already moved to Android/iOS, which is the rule of the market. The same applies to photo solutions and Nokia has to unveil its photo flagship in February not on Windows Phone 7, but on a “morally outdated” Symbian. The market cannot be too enthusiastic about it.

Nokia maps are available on any WP7 device and the same can be said about navigation with voice notes. What are the unique features of WP7 phones from Nokia then? Even the company itself cannot answer the question. At presentations Nokia shows standard WP7 features only. While Nokia employees are playing their games trying to become another Microsoft many things are happening in the outside world of mobile devices. The company is losing its market shares worldwide. The fourth market for Nokia is in Russia and а for the fourth month in a row Samsung is leading Nokia in sales. I think there is no way back and in 2012 Nokia will be firmly occupying a second place. The same can happen internationally too.

In December the sales of Lumia 800 on free markets (for example, in Russia) will show us a true picture. We just have to wait and see.

Additional reading:

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ST-Ericsson NovaThor Chip and Its Prospects

The more software and hardware solutions are available on the market the better it is for consumers. There is a recent trend to come up with identical solutions built on different chips. Sometimes it does not only help to cut costs, but changes features of the phone and its perception by customers. There are so many useful facts in the presentation from ST-Ericsson that I have to share them with you. First let’s look at the market shares in monetary terms and the list of companies working with ST-Ericsson and its new chip.

Pay attention that Sony Ericsson does not use the solution though it should be the first to embrace this powerful and efficient tool for smartphones. This is a symbol of a huge gap between Sony and Ericsson, which resulted in the selling of the mobile department to Sony. Another useful piece of data is the ranking of manufacturers where Samsung takes the second place with 19%, whereas Nokia has only 13% and is being chased by HTC with 8%. These facts are pretty telling.

This diagram does not tell that NovaThor is used by Samsung as it will happen in the distant future. At the same time HTC has already released a phone (HTC Sensation z710t) for the Chinese market with this chip. The only difference is in replacing the Qualcomm chip with the one from ST-Ericsson. Now let’s look at the next slide.

In the majority of synthetic tests the ST-Ericsson solution wins over rivals. There are several reasons for that. First of all, a graphic subsystem uses ARM Mali-400 (known by several Samsung phones), which is very efficient. Moreover, the processor has ARM architecture and currently boasts 1 GHz. Better solutions will only appear at some time in the future. To my mind, it is the best option for mid priced models. 4х core processors and new chips will appear pretty soon, but NovaThor offers great value for money. It is not the most efficient on offer, so you will probably not notice any difference from the current lineup. If you look at HTC Sensation then you will never feel the difference unless you use dedicated assessment software. The strategy behind choosing this chip is more about LTE support as far as rival companies cannot create similar chips for such an accessible price.

Additional reading:

10 principles of good design according to Dieter Rams

P.S. Have a nice week. The promised reviews delayed by a huge project, which is almost ready, will be published this week.

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Spillikins №145. Apple iPhone 4s: Short Supply or Lack of Demand?

Contents:

Apple – Rumors of Production Issues and iPhone’s Bad Battery

The First Gen iPod Nano Battery Defects

Microsoft Wants to Fix Nokia Until It Gets Broken

ST-Ericsson NovaThor Chip and Its Prospects

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