Posted by: mobilitycloud | February 9, 2012

The Race for the $100 Smartphone + Carrier iPhone Impact

To continue the discussion from yesterday’s blog on how device subsidy significantly impacts the carriers of the iPhone, let’s also take a look at the lower end of the marketplace, which is also having its struggles in terms of its costs structure. Microsoft’s new Windows Phone has a pair devices in $100 range to compete against the lower-end of Android as they are examining chip-sets made by Qualcomm and others to drive down their costs so they can offer affordable devices to consumers. So now back to the iPhone discussion where Sprint announced its 4th Quarter earnings yesterday where they posted the biggest increase in subscriber growth since 2005 but due to cost constraints placed on them by selling the Apple device, they lost quite a bit or their profit margins. Sprint sold 1.8M iPhones this past quarter as part of their $15.5B 4-year agreement with Apple, but that actually lowered Sprint’s adjusted OIBDA margin from the previous quarter of 18.2% to 10.8% this quarter. Overall between Sprint, AT&T and Verizon there were nearly 14M iPhones sold but with the margins for the carriers shrinking and the cost of building out and expanding network capacity for 4G, is it reasonable to expect the current price structures to businesses and consumers to remain the same? Again the iPhone is by far the most popular smartphone out there, but the metrics to support selling these devices along with our insatiable need to be connected 24/7 will probably drive the costs to consumers higher in either in purchase price or more likely our monthly bill, so be cognizant of your bill and make sure you take advantage of those Unlimited buckets before they go they way of Model-T!

The race for the $100 smartphone

Posted on 08 February 2012 by Martha DeGrasse.

The race for the $100 smartphoneAlmost half of all Americans now own a smartphone, and the number of smartphone owners is rising every day. But carriers are struggling with the cost of subsidizing smartphone sales and looking for less expensive ways to attract new customers. Enter the low-end smartphone: a category that has device makers, chip designers and software companies all racing to make products that can compete.

Microsoft (MSFT) sees the lower end of the market as its chance to catch up with Apple’s iPhone(AAPL) and Google’s Android (GOOG). T-Mobile USA currently offers a pair of Windows Phone 7.5 devices for less than $100 with a two-year contract.

But the low-cost smartphone market is still “Android’s to lose,” according to In-Stat Research, a unit of NPD. The group foresees annual shipments of 339 million low-cost Android phones by 2015. Some Android phones currently sell for less than $100 with contracts.

But of course these phones are much costlier before subsidies. This year just 5% of the smartphones expected to ship will be priced below $200 wholesale, according to Informa Telecoms and Media. But four years from now, the research firm expects that percent to grow to 24%.

The ability to put more and more processing power on a single system-on-a-chip is the driving force behind cheaper smartphones. Qualcomm (QCOM) has been a pioneer in this area, but now competitors are nipping at its heels. Two weeks ago Jack Kang, director of Marvell’s (MRVL) applications processor business, told DailyTech that he expects his company’s chips (not Qualcomm’s) to be part of the Windows phone in China. China will be the largest market for lower-priced smartphones, according to Informa.

Sprint notches 1.8M iPhone activations in Q4, but margins take hit

February 8, 2012 — 9:19am ET | By

Sprint Nextel (NYSE:S) posted a wider net loss for the fourth quarter, but gained the most net subscribers in a quarter since 2005 thanks in large part to the addition of Apple’s (NASDAQ:AAPL) iPhone to its lineup. However, like other carriers, selling the iPhone came with a cost–Sprint’s margins took a hit as a result of higher device subsidy costs.

iPhone: Sprint added 1.8 million iPhones in the quarter, and said that around 40 percent of those, or 720,000, were new customers. Sprint executives had previously said they expected at least 1 million iPhone sales in the quarter. Sprint has banked on keeping its unlimited smartphone data plans as a way to differentiate its iPhone offerings from those of Verizon Wireless (NYSE:VZ) and AT&T Mobility (NYSE:T). AT&T added 7.6 million iPhones in the fourth quarter and Verizon added 4.3 million. Sprint did not provide guidance for future iPhone sales.

Like both Verizon and AT&T, Sprint’s margins were pulled down in the quarter due in part to the subsidies it paid on the iPhone. Sprint’s adjusted OIBDA margin fell to 10.8 percent, down from 18.2 percent in the third quarter. (By comparison, Verizon’s wireless service margin was 42.2 percent in the fourth quarter, down from 47.8 percent in the third quarter, and AT&T’s wireless service margin fell to 27.8 percent in the fourth quarter, down from 43.7 percent in the third quarter.) Sprint CFO Joe Euteneuer said that although Sprint needs to pay the up-front cost to Apple to carry the iPhone (it has a $15.5 billion, 4-year contract with Apple), iPhone customers will bring long-term benefits to Sprint through increased revenues. Hesse said that Sprint is not worried about its iPhone sales commitments to Apple. He also that Sprint is seeing lower data usage from iPhone customers compared with its Android smartphone customers.


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