Newcomers Begin To Influence BMI's Handset Forecasts
Many of the world's largest smart device manufacturers use trade shows such as Mobile World Congress (MWC) to showcase their latest products and outline their strategies for the coming year. MWC 2014, held in Barcelona in late February, was no exception and BMI's analysts were, as usual, in attendance. It is, perhaps, a sign of how quickly the smart device market has matured that there were few revolutionary products on display, with the most significant advances from 2013 being confined mainly to improvements in processor performance, the addition of higher-definition displays and pricing. That said, a number of new arrivals look set to redefine the market over the next few years, if audience appreciation of their products is anything to go by.
Russia-based Yota Devices showcased its second-generation YotaPhone, a dual-screen device that - among other innovations - utilises e-ink display technology to show most-recently accessed content even after the battery is drained. Although the device is powered by the latest iteration of the popular Android operating system (OS), the user interface is significantly different from the myriad Asian-made Android smartphones flooding the market, helping it stand out from the crowd and highlight the versatility of Android's open source model. Originally designed to work with the Scartel/ Yota networks in Russia, the YotaPhone is poised to roll out to 20 new markets before the end of 2014, including major territories in Europe and the Middle East. Assuming attractive price points can be agreed with network operators and distributors, BMI believes the YotaPhone has a good chance of diluting interest in standard Android devices and among budget-conscious Apple iPhone aspirants. 4G support and dedicated e-reader capabilities will also be attractive to consumers.
While Yota is riding the Android bandwagon, several other newcomers have elected to develop their own operating systems in order to bring more choice to the smart device market. Finland-based Jolla has developed the Sailfish OS which can sit either on top of handsets and tablets running the core Android OS or on bespoke devices. Sailfish is employed to create a highly customisable and personalised user interface that can leverage specific product brands as well as off-line data sets such as mapping and navigation services, reducing data consumption requirements and extending battery life. Android compatibility means that the OS will seamlessly interwork with key device elements, such as cameras, touch displays and processors that have already been designed for Android, thus lowering the overall product cost.
|Emerging Europe Goes Mobile|
|Annual Handset Shipments By Region ('000)|
That said, Jolla is not directly targeting emerging markets or low-end smartphone markets as its initial handsets are expected to cost as much as US$550 dollars. The company also does not expect to sell large quantities of devices; it is small enough to survive on relatively low sales volumes. Rather, it hopes to propagate the Sailfish OS across the Android ecosystem and derive revenue from licensing the OS and monetising content partnerships. BMI believes the highly appealing devices will go a little way towards breaking the dominance of major Android promoters such as Samsung.
The Mozilla Foundation-developed Firefox mobile OS was also put under the spotlight at MWC 2014, as were its plans to develop a US$25 smartphone aimed at emerging markets. Consequently, the organisation's latest products attracted a great deal of attention from journalists and analysts. The use of Spreadtrum's low-cost system on a chip (SoC) technology will be instrumental in achieving the US$25 goal, and its work with Huawei Technologies and Haier Telecom to develop low-cost handsets will be key in helping operators reach out to the next 2bn mobile users in the medium to long term. The success of any new OS is inextricably linked to the breadth and depth of supporting applications and content; there is little evidence as yet to show that Firefox mobile can deliver on this point but, as its focus will be on low-income consumers in emerging markets, a paucity of frivolous applications and content is excusable. The OS' dependence on HTML 5 means that it can theoretically deliver cost-effective data transfer rates even over underpowered 2.75G and 3G networks, while local content developers can quickly and cheaply develop relevant content for the device. Nevertheless, it is unlikely to appeal to consumers even at the lower end in more mature markets.
Spain-based original equipment manufacturer Geeksphone has also developed smartphones running Firefox mobile, but it used the opportunity to present its new 'ultra-secure' mobile platform, PrivatOS, another iteration of Android. It will power the company's so-called 'hack-proof' Blackphone handset. This platform has been jointly developed by data encryption experts Silent Circle in reaction to growing concerns that users' personal data are routinely being siphoned off public mobile networks by state security agencies around the world. As such, the device attracted a great deal of attention from journalists and analysts and may appeal to enterprises looking to protect their back-office systems from security threats posed by workers' efforts to use their personal poorly-encrypted devices rather than company-mandated 'uncool' products such as BlackBerry.
The latter was, uncharacteristically, absent from MWC 2014, perhaps understandably given that it is currently undergoing a painful regeneration under the public spotlight. The launch of high-end products from Samsung and Nokia, among many other global brands, reinforces the view that the smart devices market remains intensely competitive and that there are still few alternatives to both iOS and Android. While we appreciate the potential for Firefox in emerging markets, we believe that it - like Nokia's dabbling in Android waters with Nokia X - will be seen as a stepping stone for some emerging markets consumers to move up in the smartphone world to more advanced platforms. We do not believe a similar fate awaits the YotaPhone, although it will be interesting to see where, when and for how much the company's latest devices will be deployed.
With Yota, Jolla and Geeksphone targeting Europe in 2014, BMI's handset shipment forecasts show there is considerable scope for all three to penetrate key markets in the region. With the massive Russian market driving volumes, we forecast annual handset shipments in Emerging Europe to rise from 105.5mn in 2013 to 176.5mn by 2018. Lengthening handset replacement/upgrade cycles dominate the Western European landscape for the foreseeable future; thus, we forecast annual handset shipments in this region growing from 51.0mn in 2013 to 74.1mn by 2018.