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Android N, Samsung’s Last Stand, Rough Q1 for iPhones

Google gave a handful of blogs a preview of their new Android N operating system. Amongst the two best guesses I have seen for what N will stand for is Nutella and Neopolitan. I’m voting for Nutella since I love to the stuff.

We know new Android releases only get used on a small fraction of devices. This is actually one of the things I hope to see Google address at Google IO and it would be validated if the rumors are true they are trying to take back control of Android. With Marshmallow running on less than 3% of devices, for these updates to truly mean anything Google needs to take more control on how they get rolled out.

Some inside baseball nuggets on Android from an OEM standpoint. Android OEMs have multiple choices of apps to use when it comes to things like calendar, mail, contacts, text messenger, etc. This is one of the reasons there is dramatic inconsistency across Android devices. I run into this frequently when I bounce between Android devices — some of them sync with my Microsoft exchange stuff and some don’t. Some handle text and MMS messages differently. All because the OEM can use a range of different core apps. This lack of consistency in these core apps that come with the device is a hot mess. These are the types of things Google needs to clean up. I’ve heard is starting with the messaging app in Android N )which is supposed to be much more like iMessage) and OEMs will only use that one across all devices. This would be a positive step forward.

The other big initial feature I think is interesting is the split screen mode for apps. This is clearly a tablet feature. While our data continually shows the market for Android tablets is mostly sub $100 and shrinking, not growing, I have been optimistic on the idea of an Android-based device in the Surface or iPad Pro form factor for emerging markets. My thesis has been, this $300-$400 Android 2-1 PC makes more sense in markets where PC/Windows penetration is low and Android is the main OS in country. India is a prime example of this and a key market where I can see an Android 2-1 PC doing well. I’m actually doing a study on this very idea in India at the moment to see if I’m right. If this idea has legs, it will need Google’s assistance to embrace it and take it to market. I’m hoping this feature in Android N is a step in that direction.

Samsung’s Last Stand

Samsung’s mobile business is in transition. Their blended ASP (combined feature phones and smartphones) was around $190. Their smartphone ASP is in the $220 range. I believe what we hear from management is they would like this to change. They are reorganizing to attempt to attack the markets where more premium smartphones are sold, particularly in the US and China, with a goal of focusing on selling more premium devices even if it means selling fewer smartphones overall.

Models for this year by buy-side investment firms model Samsung in the low 70m range for Q1 2016 which will be a seasonal decline. However, expectations are that ASP goes up. I am yet to be convinced. The dynamics of the Android user base are so dramatically different than that of iOS I fear this will be the undoing of their new strategy.

When you look at Samsung’s installed base, you realize their mix of devices skews much older in key markets. For example, the Galaxy S6 represented only 9% of the US installed base according to Kantar’s latest data and it shows up as 10% in my data for US mix. The 6S Edge shows up at 2% in Kantar’s data and 4% in my data. So combined Samsung’s S6 flagships represent 12-14% of their US installed base. The vast majority of Samsung’s base is actually on the S5 at 20% of their installed base. So we can certainly gauge this as an upgrade opportunity, possibly. Samsung does have a solid intent to repurchase rate, with 63% of consumers in our most recent study who currently own a Samsung smartphone saying they are very likely to repurchase a Samsung device. Contrast that with 82% of iPhone owners who not just plan to buy another iPhone but have also not even considered switching. 26% of existing Samsung owners have considered or plan to switch to the iPhone compared to 8% of iPhone owners who have considered switching to a Samsung device. The picture for Samsung is even bleaker outside the US where other brands are gaining steam.

The new S7 lineup is a good one and I do think they have a healthy base of S5 and S4 users to pull from. But they’ll stay flat in premium shipments, likely ~40m in total in 2016, which is their normal range. The Galaxy Note lineup in the fall could add another 5-8m in calendar 2016 so ~50m current gen flagships in 2016. Not terrible, but not changing the trend line.

Rough Q1 for iPhones

While it appears the Chinese New Year was good for Apple and Q1 2016 iPhone sales of the 6s and 6s Plus are on a steeper adoption path by several percentage points than this time last year. But it seems other global markets are weaker as many analysts have modeled. We still have one month to go, but it does seem there is reason to worry about total iPhone shipments in Q1, despite China being strong. Closer to the end of March, I’ll have a better read and will send out updates on how Q1 is looking for iPhones.

Despite the rumored launch of a 4 inch iPhone, it is looking like 2016 will be a tough year overall for iPhone shipments. I am, however, optimistic on other Apple products like the Mac, the iPad Pro, and even the Apple Watch which I’m modeling to help balance some of the weaknesses in iPhone sales in 2016.

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Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio

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