Mobile phone handset

Apple sold more phones than any other company including Samsung in the last quarter of 2016.

IDC says it is the first time Apple was New Zealand’s top selling phone brand since early 2012.

During the quarter phone sales hit a record high. Some 672,000 phones shipped1 between October and December 2016. That’s up from 614,000 a year earlier.

Apple shipped 221,000 phones. Samsung shipped 176,000. Third-place Huawei closed the gap on its rivals shipping 143,000 phones.

The three brands accounted for almost 80 percent of total phone sales.

Apple beat Samsung in Q4

Samsung’s Galaxy Note 7 recall after dozens of fires and explosions only goes part of the way to explaining Apple’s success.

IDC New Zealand client device analyst Chayse Gorton says:

“…even with some consumers expected to be holding off upgrading their smartphone until the release of the 10th anniversary edition iPhone, forecasted in late 2017, the demand for iPhone 7 has been stronger than anticipated”.

Gorton says the iPhone 7’s updated specifications were enough to entice Apple users.

He says: “It’s hard to say with confidence that a single feature drove customers to upgrade, such as increased durability. It is likely a combination of improvements leading to consumers perceiving the iPhone 7 models as superior”.

Samsung loyalty

That explains why Apple users upgraded, not why customers of other phone brands switched to Apple. Gorton says the Note 7 problems meant some consumers questioned their loyalty.

It looks as if Apple’s surge is greater than upgrades and Samsung refugees alone might suggest.

Also interesting is Huawei’s rapid growth. Until late 2016 Huawei phones offered similar features and style to Samsung models at a sharp discount.

Samsung faced a battle on three fronts:

  • self-inflicted wounds,
  • Apple at the high end and
  • Huawei cutting the price ground from under Samsung’s feet.

Despite all this Samsung stayed in the top spot for the year. IDC New Zealand puts its market share at 32 percent, while Apple and Huawei were at 27 percent and 14 percent.

This year will see added competition from Oppo. At the same time, Huawei is moving upmarket into Samsung territory with the NZ$1400 Mate 9 Pro.

Vodafone phones

IDC’s chart shows Vodafone has an 11 percent market share with its own branded phones. Some of these are excellent value, in extreme cases they have much of the function of phones costing eight or ten times as much.

  1. IDC counts phone shipments, a measure of how many phones leave warehouses. That’s not quite the same as sales. ↩︎

Abstract, Jackson Pollock

Global PC sales were down 9.6 percent year-on-year during the first quarter of 2016 according to Gartner. Total sales for the quarter were a shade under 65 million. This was the first quarter with less than 65 million units sold since 2007. In contrast, sales in the same quarter of 2013 were a little over 76 million.

Gartner’s numbers are optimistic compared to IDC which put the figure at 60.6 million units sold, down 11.5 percent on the same period a year earlier.

Both analyst companies say Lenovo remains the world largest PC maker. IDC gives it a 20.1 percent market share, Gartner puts the figure at 19.3 percent. Lenovo’s sales fell slower than the overall market.

HP down 9 percent

Number two brand HP saw sales fall 9 percent, while third-place Dell was stable. Gartner says its sales dropped 0.4 percent while IDC put the drop at 2 percent.

Asus and Apple are number four and five. Gartner has Asus a whisker ahead of Apple, IDC reverses the positions. Gartner thinks both companies managed to grow during the quarter, IDC disagrees.

The rest of the market slumped, depending on which set of numbers you prefer sales either fell 18.4 or 19.8 percent. Either way, it’s a bloodbath.

Currency a red herring

Gartner thinks currency movements can explain the decline with PCs now more expensive outside of the USA. Maybe.

However, the figures point to the fifth year in a row of falling PC sales. Sales have dropped year-on-year in each of the last 12 quarters.

The recent quarter’s decline is the worst on record. Look beyond the top brands and you have to ask how long before computer makers exit the business. There is no apparent upside, no recovery in sight.

Earlier analyst forecasts looked forward to the arrival of Windows 10 fueling fresh sales. That was over a year ago and there was no bump, no up-tick.

Keep taking the tablets

You might explain some of the drop in PC sales by the rise in tablet sales. Incidentally, I wrote this blog post on an iPad Pro — a few years ago it would be a PC task.

About 100 million tablets are purchased each year. Some will have been purchased as laptop alternatives. Yet tablet sales are also falling. And, anyway, some hybrid devices that combine PC and tablet features are counted in the PC sales numbers.

The obvious explanation is that phone sales are killing PC sales. Not only do they suck up money that might otherwise be spent on PCs, in many cases they deliver enough PC functionality for a sizable slice of the population. It turns out many people only bought PCs for mail, browsing, video calling and other simple tasks that work just fine on a phone.

Apple CEO Tim Cook has made a point of questioning why people still bother buying PCs. That’s an interesting statement given that Apple is one of the few companies to do well in PC sales in recent years. Perhaps, unlike Gartner and IDC he thinks MacBooks and iMacs don’t count as PCs. He suggests most would be better off buying an iPad.

After three years of falling PC sales computer makers hope Microsoft and Intel’s Skylake processor can revive a flagging industry.

PC sales hit saturation point two or three years ago. Analysts knew demand would fall, but the drop was worse than expected.

Some thought replacement sales would keep the market ticking over.

It didn’t happen. Business users and consumers moved slower than usual to replace their old laptops and desktops.

PC market not pretty

The numbers are ugly. Gartner said global PC sales dropped 9.6 percent in the second quarter of 2015. IDC Research had the number close to 12 percent. Year-on-year sales are down at least six percent. It’s been that way since 2013.

Conventional industry wisdom says this is because computer makers got better at their job. After years of churning out unreliable hardware they fixed manufacturing processes and supply chains to the point where today’s computers are less likely to fall apart.

This means the last batch of ageing computers lives longer than previous batches.

Not the whole story

There’s something in that idea, but it isn’t the whole story. Most personal computers, even in the bad old days, lived longer than the normal replacement cycle.

The difference then was that new technologies would come along making a before-end-of-life upgrade desirable, if not compelling.

New applications, better ways of storing data, nicer screens, exciting games, higher productivity, greater mobility and so on were all reasons to splash out on new kit before the old hardware had popped its clogs.


The constant need to upgrade has changed since the internet moved centre stage and since mobile phones became an essential part of life. New PCs don’t surf the web faster, load Facebook pages quicker or post more photos to Instagram than old ones.

At the same time consumers have not been impressed by recent advances. They responded sullenly to Microsoft’s mistaken push towards touch screens and expressed outright contempt for Windows 8. Few felt the need to upgrade.

Nothing underlines this more than the surge in Apple Mac sales over the same period. Some Widows PC customers were so unimpressed they jumped ship.

Business buyers less impressed

If anything, the response from business to Windows 8 was more negative. Many companies resented being forced off what they saw as the perfectly decent Windows XP.

The lack of enthusiasm for Windows 8 may have only affected things at the margins, but it came on top of already falling PC sales and turned a retreat into a rout.

Now PC makers, Microsoft and Intel plan to get the message out that it is time to upgrade. Expect expensive sales campaigns as they push these messages.

New sales pitch

The sales pitch is “Look at our sleek, slim yet astonishingly powerful Ultrabooks. See what you’re missing by keeping those overweight old clunkers. Try our new all-in-ones or our tablet-to-PC convertibles.”

This strategy will work with business customers, if only because the magic words “productivity gains” carry a lot of weight in management circles.

Consumers are going to take more convincing. Dollars spent on new PCs are dollars that can’t be spent replacing ageing smartphones – which have a far shorter shelf life than laptops.

You’ll notice, added mobility aside, those sales pitches don’t include any compelling consumer reasons to replace old kit.

There’s nothing important new computers can do that old ones can’t. That’s the gaping hole at the moment. For now, consumers will wait until their hardware falls apart before upgrading.

Almost no-one makes money selling Android phones. It makes you wonder why hardware companies persist when there’s little prospect of a return.

Numbers tell the story. IDC Research says three out of every four smartphones shipped in 2014 used Google’s Android software. 1

That sounds like success. It isn’t.

Android phone makers taken as a whole lose money. Even the handful making a profit get paltry returns. Most would be better off if they left their money in the bank.

Follow the money

Despite being three-quarters of total phone sales, Android accounts for only 11 percent of phone profits.

Apple is the winner. It has a mere 20 percent share of phone sales, yet this translates into 80 percent of phone profits.

A single Apple iPhone earns more profit than 30 to 40 Android phones.

Two winners: Apple and Samsung

Only two companies make money from phones; Apple and Samsung. Of those Apple makes five times as much as Samsung from each phone sale.

Beyond these two companies the premium phone market is a train wreck. If we are generous, LG breaks even. Sony, HTC and Lenovo, which now includes Motorola lose money on every phone sold.

To be fair to the Android phone makers, things are worse for Blackberry and Microsoft. They lose about NZ$100 each time they sell a phone.

It seemed like a good idea at the time

On paper Android’s economic case seems sensible. Apple, Blackberry and Microsoft have to invest heavily in software.

Apple spends US$2 billion a year on research and development.

There’s understandable confusion about the cost of using Android. Phone makers may not pay a license fee to Google, but Android isn’t free.

Microsoft’s billion dollar Android shake-down

Mary Jo Foley at ZDNet reports Samsung paid Microsoft $1 billion for patent licences that Android allegedly infringes in 2013. That’s half Apple’s entire R&D budget.

Phone makers also insist on adding their own software to the stock Android operating system. They kid themselves they are adding value, mostly it has the opposite effect. This is a waste of money.

There are two versions of Android. An open source version and a proprietary version. Some phone makers choose the open source version and build their own frameworks on top. Most premium Android smartphone makers use the proprietary version.

Proprietary Android

Proprietary Android includes Google’s apps like Chrome as part of the deal. Unlike the bare-bones open source version it includes all the services modern phone makers need: location services; Google Maps; The Play Store; mechanisms for in-app purchases and so on.

Although Google doesn’t charge phone makers for proprietary Android, the deal is that they leave Google’s services intact. This is so Google can track user activity and use that information to target advertising.

That’s where the real money is in Android phones: the phone makers deliver up users for Google to milk. Most phone makers and their customers seem happy with this.

Open source Android hardware

Phone makers could choose the open source version of Android, but they’d have to build all those services and the supporting infrastructure or find partners who can deliver them. There aren’t many alternative service providers out there.

Which brings us back to the question at the top of the story. Why are phone makers, or their shareholders, pouring money into delivering their customers to Google’s advertising machine?

If you ask them, you get mixed answers. Some phone makers, Huawei is one, think they’ll be left standing after the inevitable market shake out and there will be money-making opportunities later.

That’s plausible, but it requires the kind of deep pockets other phone makers don’t have.

What you lose on the swings…

Others expect to lose money selling phones, but hope to get it back from tablets or wrist devices. Good luck with that one. The tablet market is in worse shape that the phone business.

Nor are wrist devices, smart watches and other wearables going to repair balance sheets. And anyway, Android doesn’t seem well-suited to the wearable format.

It speaks volumes that Samsung’s latest smart watches use the company’s own Tizen software in place of Android.

Companies aiming at the high-end of the Android market are between a rock and a hard place. Apple is the rock. None of them can capture the public’s imagination the way Apple does, nor do they come remotely close to Apple’s margins.

China beckons

In the hard place are cheaper phones from Chinese makers like Xiaomi and Huawei. When it comes to quality and featuresHuawei’s phones are within spitting distance of the would-be posh brands, but at two-thirds the price. Xiaomi models are even cheaper.

There’s also a weariness from consumers. You get some benefit upgrading from say, a Samsung Galaxy S4 to an S6, but there’s little incentive to open the cheque account each time a new model arrives.

Upgrading is confusing. If you were a happy Galaxy S4 owner looking to replace your phone this week what would you choose: the S6, S6 Edge, S6 Edge Plus or the Note 5?2

Another problem facing Android phone makers is that the market appears to have peaked. While the market was growing there was always potential for rewards. Smartphone sales ticked up 10 percent in 2015 compared with 2014, Apple captured all the growth and then some. Android sales fell a little.

Market share matters little when the market isn’t profitable. What matters is who is making money? The simple answer is Apple, Samsung and, at second-hand, Google. For everyone else it’s either a long-term bet or a profitless abyss.

  1. Shipments are similar, but not the same as sales. A phone is shipped when it leaves the factory for the distributor or retailer. Think of it as the number of phones the phone maker hopes to sell.
  2. It must cost Samsung a pretty penny to market four premium phone lines.

IDC Research reports New Zealand sales fell 2.7 percent in the second quarter compared with the same period last year. This dip contrasts with plummeting sales in some overseas markets.

IDC senior market analyst Arunachalam Muthiah says 188,000 PCs were shipped1 in the first quarter of 2015.

The number is the same as the previous quarter and represents a 2.7 percent decline on the same period a year ago.

Muthiah says sales were 2.8 percent higher than forecasted.

Down, down, deeper and down

Compared with other markets overseas New Zealand’s downturn is a gentle dip. IDC reported at sharp 25.6 percent decline over the same period in the Middle East & Africa PC Market.

IDC says the global PC market will fall 8.7 percent during 2015.

Rival research company Gartner estimates global sales fell 9.5 percent in the second quarter of 2015. Gartner includes tablets in its numbers.

At IDC, which just counts PCs, the second quarter fall was 11.8 percent. This is the biggest drop in two years and underlines the steady demise of personal computers2.

Enter Lenovo

New Zealand’s figure was helped by Lenovo entering the consumer PC market. Muthiah says this lead to increased competition. There was also strong spending in government and education.

He says refresh sales that may ordinarily taken place in 2015 were moved forward into 2014 after Microsoft dropped support for Windows XP.

IDC expects 2016 sales to be marginally higher than those in 2015 for New Zealand. This contrasts with the global picture where sales are expected to fall again in 2016 marking a five-year decline. IDC expects global sales to pick-up in 2017 thanks to the commercial market buying again.

Tablets can’t take the blame any more

In recent years analysts blamed the rise of mobile devices, especially tablets, for falling PC sales. That explanation is no longer valid. If anything tablet sales are now falling faster that PC sales.

While smartphone sales are not yet in decline — although that day will come — they have slowed from double-digit growth.

HP remains New Zealand’s top selling PC brand. The company accounted for almost two our of every five computers sold in the quarter with a 37 percent market share. It has been in this position for years now.

Second place goes to Acer. The company has been runner up to HP for some time. Acer has an 18 percent market share.

Apple slipped from the third slot to number four position as Lenovo stepped into the consumer market. Both companies have around a 12 percent share. Dell and Toshiba continue to face declining market share in a falling market — not an enviable position.

One thing is clear about the overall PC market, it is in a long-term decline. It may tick up some years and stand still in others, but we are now well past peak PC.

  1. Analysts talk about shipments. They are similar, not the same as sales. Shipped means a computer left the factory for the distributor or retailer. It is easier to measure. Not all shipments turn into sales. Shipments give us a consistent and more reliable number to make useful comparisons.
  2. My take on this is that the market peaked four or five years ago as the upgrade cycle switched from two, three or four years to something longer. Many users find their existing devices are good enough for their computing needs. They have few compelling reasons to upgrade until their hardware starts to fall apart. At the same time new versions of Windows no longer trigger a fresh buying cycle.