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Spillikins 179. RIM to Embrace Microsoft

Seems to me like manufacturers forgot that June is the first summer month and instead of sending their staff to vacations only begin to work harder. June saw the announcement of Microsoft Surface and Windows Phone 8 at TechEd 2012 in Amsterdam and then in North America. I posted some links about these events in the previous issue of the Spillikins. I have interviewed Microsoft's Greg Sullivan and truly enjoyed, I asked him about the Windows Phone 8 announcement: who it was for, why MS is choosing this strategy and so on. I hope you will enjoy reading our conversation and learn new things about WP8 positioning on the market.

Another important piece of news is the Google I/O developers conference it was covered by our own Artem Lutfullin. Here I will add a bit of my thoughts on this event too.

I understand that my endless ranting about Nokia and RIM must be tiring to many of you but I simply cannot leave these stories of epic suicides. The both companies make maddest decisions and promises. RIM has lost another 20% of its value last week. But enough for that, let's get down to the news. Sorry for the size of this issue I try to contain my thoughts but they keep puring out in six thousand word articles.

Further reading:

Microsoft Surface Tablet: the new rules of the market game

Windows Phone 8: smartphone OS presentation

Android 4.1 Jelly Bean and other news from Google I/O 2012


  1. Patent Wars: Apple Beats Samsung in the US
  2. Android 4.1 Jelly Beans and Google Strategy
  3. RIM Is ready to Sell Blackberry to Microsoft
  4. Nokia Continues Its Downward Trend
  5. HTC Leaves Brazil and Changes the Processor
  6. Summer Sales in US

Patent Wars: Apple Beats Samsung in the US

2012 is a year of patent wars where everyone sues everyone. Apple's strategy is not hitting Google itself but rather its successful partners presenting a threat to Apple products. Apple usually chooses one feature of their OS and push a lawsuit against a number of products. In February 2012 Apple tried to ban Samsung Galaxy nexus and Galaxy Tab from sales in the US which according to Apple violated four of Apple's patents concerning the unified search algorithm used in the voice search Siri, other claims concerned auto spell check and screen unlocking by the slide-to-unlock motion. As you see, these features are used in all devices running iOS and Android. The Californian court decided that one of the Siri patents might actually be violated in Samsung products as the feature has market value. The court's preliminary verdict was to prohibit sales of Galaxy Nexus (and Tab a bit earlier). If the court makes it its final motion to prohibit these devices from being sold in the US it would be a heavy blow to Android. Apple is already preparing similar lawsuits against Galaxy S3. Apple tried to make S3 a case in the Nexus lawsuit but the court denied it. Should the court ban Nexus all other Android manufacturers will be in danger of being sued by Apple. Google cannot help its partners right now because it does not have related patents and is currently engaged in litigations with Oracle. And even though Google is winning the battle with Oracle the litigations have shown that Google's legal department leaves lots to be desired and Google lawyers did not look confident in court. Seems to me that this lack of confidence is a pattern in all Google cases whenever it concerns one of their partners.

The next step for Apple in this battle is the $96 million bail defined by Samsung. When Apple has paid the bail the court will consider the patent violation and if it decides the violations did take place the mentioned Samsung devices will be banned from sales and, moreover, Apple will be entitled to compensations. This story promises to be very bloody for one of the companies as one of the parties will surely lose a great deal of money in this case. But most importantly, it may lead to banning all Android products from the US market. So far Apple is only concerned with the most successful Android devices but it may decide to against all of them.

Further reading:

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Android 4.1 Jelly Beans and Google Strategy

All American companies first of all try to corner the American market and only then begin to notice the rest of the world. Some make it a strict rule like Motorola while others use a more balanced approach. But all American manufacturers see the US market as their top priority. That is probably why Google I/O 2012 was so about the US market. That is also why Apple is a lot more active in courts in America than anywhere else. If Apple wins Android on their home grounds the rest of the world will follow. The top managers in the both companies think alike and understand that success in the US almost guarantees success in the rest of the world. However, I think in the long run this sort of thinking will lead to problems in flexibility in international policies.

I recommend reading this article of ours on the Google I/O event while here I will be talking about some of the things that are not mentioned there.

Android 4.1 Jelly Bean and other news from Google I/O 2012

Google is trying to fix their biggest problem with Android and that is the time between the announcement of a new version and the release. Right now this time for Android is about six months. Android manufacturers simply cannot keep up with updating all of their phones making the penetration of the latest Android versions very slow. Android critics often mention this fact as a serious drawback of the OS. For example, right now most Android devices still run on the 2.3.x version while it's already been over six months since Android 4 was released. In this case Google is a victim of their own strategy. Now Google wants to change the situation and adopt Apple's model when there is only three months between the announcement and the release. Three moths is how much developers get for beta testing of their software for the future OS. I think it is a very good initiative but we'll see how well it will be applied.

A related and ridiculous story is that Galaxy S3 will not be updated to Android 4.1 until late summer. Google's strategy stomped on Samsung and added another reason for Android critics: even the Android flagship gets its updates postponed. I think this is just unacceptable and Google has to do something about it.

Secondly, another Android's priority field of development is the Butter project aimed at optimizing the performance of Android devices. The point of the project is to achieve better performance with every firmware update as Apple manages to do so far with its products. IOS6 greatly optimizes the performance and my iPhone4S got about 50% more battery life with the beta iOS6 it's amazing.

It is too bad that Google does not have a reasonable and balanced approach to development of Android UI. Take this new feature Google is proposing: they want to allow third party developers to place app notifications in the status bar. It is utterly stupid. Even today after updating my apps in the Play Store I see an endless list of notification in the status bar and if all the apps will be allowed to so it will be a nightmare. The reason Google is doing it is because they fail to make a proper interface on the first level so they just move all the problems of the UI and user suggestions to other places like creating folders for icons and now making a mess out of the status bar. It is like cleaning up your room and mopping all the dust under the coach where no one can see it.

Thirdly, the voice search has been one of the Google's strongest sides and the company truly made a breakthrough with its voice technologies introducing multi language support and offline work. Google's Siri alternative looks a lot more interesting and even more human. Check out this video on JellyBean system as compared to Siri:

I think this video makes it clear that Google voice technologies are immensely superior (mostly because it causes Apple fans get heart attacks). Jelly Bean makes Siri look more like a toy while Jelly Bean itself is a real working feature.

Another news: starting from Android 4.1 Adobe Flash will no longer be supported and the app will be gone from the Play Store on August 15 so if you need Flash I'd suggest that you download it now. Flash was marketed as one of the advantages of Android and turns out it was nothing just as we expected.

The important news is that the Chrome browser will be available on iOS and Android. Why important? Because according to StatCounter Chrome is now the most popular browser in the world taking up 32.43% of the market against 32.12% of Internet Explorer. I don't think that Chrome will become very popular on iOS but it is important that it is available there.

Lastly, I want to talk about the Nexus devices. Nexus 7 tablet was announced with 7 screen, 8GB of RAM, weighing in 340g/12oz the latest Android on board and up to 9 hours of video playback for amazing $199. Google tried a funny marketing trick with this one and declared preorders from June with deliveries only in July. So you pay now and wait for your tablet to be delivered some time in the future. Rich, isn't it? I don't know why they did it and anyway if by July there is a better offer the people will be able to return money on their credit cards.

I don't think that by releasing their own tablet Google intends to corner the market. I think that just like Microsoft with its Surface they are only trying to show the market a model tablet and set a price range. Android's strategy on the phone market was low prices and diversity and now Google is using the same policy on the tablet market. For the price of iPad you will be able to get the Nexus 7 tablet and Galaxy Nexus smartphone and I am sure many people will find the deal very attractive. I am pretty sure that this strategy is going to be a hit unless some of the patent wars turn ugly on Google.

Seems to me like Google is repeating Apple's steps and that is either going to lead to a breakthrough or more like to losing some of Google's current positions. This Nexus Q device is an attempt to create an alternative for Apple TV and show the market that Android can be premium too. But the popular opinion is that Android is just a cheap alternative to Apple (or affordable). I am not trying to say anything and I use Android devices for a number of objective reasons. But the value of Apple products is a lot greater for regular people that that of Android. Galaxy S3 might have made a name but it is nothing as compared to Apple iPhone. And there is such big products on Android at all.

Here is a Nexus Q review. In my opinion TheVerge reviewers have been too kind to this device. I on the other hand see no reason for it at all. I don't like when manufacturers come up with craziest devices just to occupy a market niche and because they really have something to say. I say don't compete but create instead.

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RIM Is ready to Sell Blackberry to Microsoft

In June 2012 Jim Balsillie from RIM came up with an iconic phrase - "Apple has just one product, we have a portfolio. One size doesn't fit all." As early as in 2008 his partner Mike Lazaridis said that The most exciting mobile trend is full Qwerty keyboards. I'm sorry, it really is. I'm not making this up. Guardian managed to collect the list of similar quotes, which show how CEOs believe what they say.

When your company is doing fine people will listen to you even if you say silly things, because they are supported by your success. Some think that successful entrepreneurs cannot be mistaken especially in the area of professional expertise, but it is not really so. RIM has been going down for a long time and we cover this issue in detail. I am not the only one who sees the common pattern in the disintegration of RIM and Nokia. Before analyzing the latest developments inside RIM I would like to cite Ilya Danilov, asset manager from Finam Investment Company, who has been following our articles since 2003. In this letter he expressed his personal opinion on the situation based on the view from the financial industry perspective:

Dear Eldar,

In Spillikins 176 I read about Stephen Elop, which attracted my professional attention. 130 billion Euros lost by Nokia equal the amount involved in the bailout of Greece. Moreover, the same strategy of conservative decision making is present in the case of RIM, which also led to the downfall. It is intriguing how one person can dramatically affect a giant corporation of a size comparable with that of a country. Statistics figures are captivating as well.

summarized my ideas in two images with explanations to follow. I will try to be brief.

NOK (Nokia Corporation) prices take the date of November 7, 2007 as the peak and June 22, 2012 as the trough. Within the period lost around 150 billion dollars in market capitalization or 94,5%. On June 25, 2012 in US Nokia share prices reached a low of 2.20 similar to 1996, when its shares were floated for the first time. The all-time low of 1.94 was also recorded in 1996. Such performance usually leads to the destruction of the company. Stephen Elop, whose family name rhymes with Apple, became the CEO of the company in September of 2010, when Nokia prices already reached 10 dollars per share. He cannot be blamed for the entire trouble, because the financial crisis of 2008 affected all telecoms, when even AAPL (Apple Inc.) lost 60% of its value (from USD 200 to USD 80 per share). At the same time astute decisions boosted AAPL prices until USD 644 per share in 2012, which is an increase of 700%. The current management is responsible for the fall from USD 10 per share to USD 2.20 we have today. Pay attention to the following facts. In June of 2006 NOK recorded its historical peak of USD 62.50 followed by a fall. If in 2004 share prices were at USD 11 then appropriate managerial actions increased it to USD 42.22 in November of 2007, when the current slide began. In other words Stephen Elop had historically realistic targets. The second fact is that Stephen Elop was once involved in a bankruptcy when in 1998 Boston Chicken asked for protection. Stephen worked as their CIO at the time.

May be he just has a bad karma? Sound management is important. Look at Apple in 1997 (USD 3.19 per share), who managed to survive and now prospers. I am afraid Nokia will not get this chance at least as the company we knew before. In 2008 I bought Nokia 5800 instead of iPhone as I still believed in and trusted the Finnish manufacturer.

For RIMM (Research in Motion Limited) the peak price was recorded on February 18, 2011 with the trough on June 25, 2012. During the period the company lost around USD 35 billion. I compared this period with appropriate developments in Nokia to prove that investors now react to managerial mistakes quicker. RIM lost 86.9% of its market value within one year and a half, which is 3 times faster than the comparable downfall of Nokia. If we look at the period starting from June 2008 then share prices plummeted from USD 148.13 per share to USD 9.03 (-93,9%) as of June 25, 2012. The song remains the same, but only people change. Two CEOs of the company Mike Lazaridis and Jim Balsillie, who started the company in 1984 (editorial comment Jim Balsillie joined RIM in 1986) first turned it into a corporation with the market capitalization of USD 85 billion in 2008 and then reduced to its current humble position.

The blame was shifted onto Thorsten Heins, who was appointed the CEO in January 2012, when share prices already lowered to USD 15. To my mind this case is completely different from Nokias as Thorsten Heins will become a scapegoat, who inherited the failing company difficult to resurrect. I never used Blackberry smartphones, but I always respected the brand, which is being destroyed now. We can only hope!

Taking everything into account it looks obvious that the conservative decision-making in the fast-changing business environment leads to the imminent downfall we see at stock exchanges around the world.

There are some details to look into. For example benefits and bonuses paid to senior managers of both companies. This will add too many figures to the text and I have never written articles before, so take this into account please.

Best regards,

Ilya Danilov

There is no need for comments, because the ideas are clear and some of them deserve development, which you can easily do on your own. It would be indeed interesting to compare the remuneration of top managers of ailing companies when they were on a downslide. We may see that inferior performance was compensated better. In the real world you could lose your job.

Lets look back at the latest figures from RIM as its quarterly report devalued shares by 19%. Now RIM costs USD 3.81 billion, which is nothing for the company with decent sales. They are falling down though. In this quarter RIM sold only 7.8 million handsets and its market share is going down. The main reason is that it has no competitive products.

Sales generated USD 2.8 billion with the losses hitting USD 518 million or 99 cents per share. Average analytical forecasts predicted losses of 4 cents per share. The staggering depreciation of shares is merely a logical feedback.

The table also shows that despite the falling volumes the cost of sales is going up, while the number of products drops. As a rule you cannot escape this death spiral and I think RIM will not be able to.

Investors were scared no as much by falling sales as by announcements from the company that it does not see any improvement in future. For the first time RIM mentioned that its new Blackberry 10 OS will not appear this fall as it was postponed until 2013. I have said it before that Balckberry 10 is a PR product not connected with real life. It is merely a myth to show investors that the company is trying to save itself. I am not sure this product will see the market one day, because everything demonstrated during Blackberry World 2012 and related to BB10 was a mix of developments created by third parties. Remember the camera from Scalado, which now belongs to Nokia.

Strategically speaking RIM will go bankrupt pretty soon as it lacks its own OS. This outcome is inevitable as it has no developers to come up with a modern and competitive OS. RIM thrived for years due to offering specific features and services for IT professionals and the corporate market. When the mass market came to the fore courtesy of Apple iPhone the company realized it had no expertise in creating products for mass audiences. The staggering failure of Playbook, which even lacked a mail app proved that RIM had no engineers capable of creating a competitive product. They also could not acquire the expertise on the side. If you attract third party developers they should be given a certain amount of freedom and not to be preached the values of the great RIM, which led to the necessity to look elsewhere in the first place.

The bottom line is that the company cannot compete with others in terms of development, so what do you think was their next move? Last month RIM hired consultants to figure out possible solutions. One of them was to sell the business to the highest bidder. There are not many suitors, but one glimmer of hope is still there.

Reuters published an article, which sounds sensational. It claims that RIM may join Microsoft and start making Windows Phone 8 handsets. This approach is the only possibility for RIM not to lose everything within a year and a half. It will allow RIM to turn 78 subscribers into users of their services in 2013. Even if they shed some of these people RIM may survive on the market, albeit in a completely subordinate role to that of Microsoft, which will clearly benefit from this marriage too.

It is an open secret that Windows Mobile was crated for IT professionals and sells even today, thou it is obviously old-fashioned. The corporate market is rather conservative and extra features or nice appearance of gadgets is often disregarded here due to different priorities. Clients look at compatibility of corporate networks and apps created for them. After MS Office the corporate and server markets are the most lucrative for Microsoft. This is why Windows Phone 8 is based on the same kernel as Windows 8, because the company targets the corporate market. The only rival here is RIM. Apple iPhone is an alternative, but it is not a purely corporate solution. The corporate market is all about tools compatible with Intranet, offering maximum security and flexibility in working with versatile networks. At the moment Apple iPhone is just trying to get a foothold in this niche and it will need years to create a competitive product. Microsoft decided to target all areas, where Apple is weak.

The solution coming up from Microsoft is indeed attractive. They will immediately replace Windows Mobile, offer features not included in Windows Phone 7, which was not a corporate solution anyway. In the long run Microsoft will oust RIM due to integration with Windows RT/8 and server solutions. Moreover they have apps created for different environments at a time, while RIM does not have such a luxury.

By selling out to Microsoft RIM will lose their independent future, but may keep their clients, save on R&D, develop exclusively QWERTY and sensor phones. In fact Microsoft can transfer RIM into the only manufacturer of QWERTY phones on its platform and close this field for others. It depends how companies can agree on these issues.

RIM will smoothly transfer its users to Microsoft, which will be offering them its solutions. It remains to be seen if Microsoft will allow BBM to stay around, but the answer is likely to be negative. Microsoft understands that will beat RIM in the end, which is only the question of tie. The cooperation between RIM and Microsoft will be a win-win situation. MS will get new users and consolidate their presence in the corporate segment. It will take years for anyone to kick out Windows Phone from this nice. If the two companies do join forces add 20 million handsets to the sales of Windows Phone in 2013, which will be a massive success. The corporate sector may partially lend part of its luster to the mass market. I like this scenario and it is the only way for RIM to survive. Any other decision will make it bankrupt. It still has USD 2 billion in assets and its market capitalization is USD 3.8 billion. As you understand burning half a billion every quarter away is a recepie for disaster. Next two quarters will be surely loss making, so the company urgently has to decide on its future.

Related articles:

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Nokia Continues Its Downward Trend

During the North American TechED Nokia represented by Stephen Elop answered questions posed by the visitors. This PR trick has to show that the company is doing fine. I liked the commentaries after the video as they highlight slightly different developments. Someone even suggested that Elop answered tough questions! There is nothing tough there

Now lets look at the market reaction to the news that Windows Phone 7 can be updated to Windows Phone 8 and the consequences for Nokia. In the previous Spillikins we touched upon the issue, but we have more details now. For example, Nomura research company downgraded its Lumia sales forecasts for 2013 with the impossibility of the upgrade as the main reason for the change of -41% from the previous forecast, which stays quite positive for Nokia 34 million handsets. In the first quarter Nokia managed to sell 2.2 million Lumia models according to IDC. At the same time Apple sold 37 million Apple iPhone handsets. It is easy to predict that in the first quarter of 2013 Apple sales will be higher (at least 45-50 million phones). Even the positive Nokia forecast does not look that good.

Companys shares continue falling down as they reached USD 2.09 per share in US, which is below the IPO price. During the week the price even touched down to USD 2.04. The market does not believe Nokia can recover and even Stephen Elop moves cannot change the situation.

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HTC Leaves Brazil and Changes the Processor

HTC did not do well during the last year as after the meteoric rise it suffers from the stalled growth. Sales go down and it becomes necessary to cut overheads. I think the main mistake of HTC in 2011 was that the company thought too much of its own success and offered too many similar models hoping all of them will sell well. The sobering reality makes HTC correct its mistakes. Telecoms market requires long-term planning. Appropriate decisions in 2011 will help you in 2012, but f you make a mistake repercussions may haunt you for years.

As part of its cost-cutting strategy HTC decided to make a controversial move and abandoned the Brazilian market. Remember that Brazil as well as other BRIC countries represents relatively fast-growing emerging markets. By retreating from Brazil HTC accepts its failure to succeed there. Motorola did the same, but eventually lost everything apart from the US market. Taiwan is too small for the US though. I would like to believe that the company I value for innovations will rebound. Sadly we see only chaotic moves at the moment, which dent the companys image.

Another example is the switch in HTC One S from Snapdragon S4 to its previous incarnation S3. The speed of the first processor is 1.5 GHz with a stronger graphic system, while the second model boasts 1.7 GHz with the lower overall productivity. The reason for this decision was the deficit of processors on the side of Qualcomm. HTC should have clearly explained the situation to its customers to avoid scandals and gossip. These upgraded phones are shipped to Asia, Japan and several European countries, which names are not known, because HTC do not want to spoil their sales. I think openness can actually help in such situations, but the company decided to play it safe, but you cannot hide the information these days. These are all familiar crisis symptoms. I hope everything will be fine. We have to wait and see if HTC has enough strength to revert the negative trend.

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Summer Sales in US

Look at excellent data showing when goods are sold more, when consumers make expensive purchases, etc. All details are simple and clear.

Additional reading:

P.S. This issue was extremely long, but hopefully enjoyable to read. We are planning to publish an interview with Greg Sullivan from Microsoft, which explains a lot. Have a nice week!

Do you want to talk about this? Please, go to our Forum and let your opinion be known to the author and everybody else.

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Related links

Spillikins 176. Nokia Tragedy: Elops Treason

Spillikins 177. ARM Processors in 2014

Spillikins 178. Galaxy Madness

Eldar Murtazin (eldar@mobile-review.com)
Translated by Maxim Antonenko (maxantonenko@ukr.net)

Published — 08 July 2012

Have something to add?! Write us... eldar@mobile-review.com



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