Is India the Land of Opportunity China was for Apple?

In its most recent and troubling quarter, Apple indicated that despite losing ground in iPhone sales, including a significant sales slump in China, it believes its next big opportunity should kick in soon. And that big opportunity is India. But will India present the same opportunity Apple thinks it will?

Country Comparisons
India has a population almost the size of China (approximately 1.4B in China vs. 1.3B in India). China has done well for Apple over the past 2-3 years, bolstering sales in an otherwise saturated market in the mature economies. And India is relatively underrepresented in Smartphone penetration. Indeed, as a percentage of total devices, China currently has about 3 times as many smartphones in use as India does.

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But although India is often seen as a “green field” opportunity in general, does it really represent the needed boost over the next couple of years that Apple thinks it will, especially given world macroeconomics that are signaling increased difficulty in emerging markets? Can India make up the slack?

Are There Indicators That Can Help?
In attempting to answer this question, we looked at several possible indicators. Although none are flawless, we decided to concentrate on two primary measurements: the comparable amount of household income in India as compared to China, and the amount of 4G cellular coverage available.

The first as an indicator of device consumption is fairly obvious. The more household income available, the more likely it is that households will spend on the higher end devices that Apple produces (as opposed to low end smart or feature phones that in some cases retail from less than $50). And to purchase Apple services that adds significantly to its bottom line.

The second indicator, 4G coverage, we considered a valid indicator because it’s unattractive to own a higher end smartphone if you can’t get fast networks to put it to good use. And the majority of advanced features, and especially the services that Apple sells along with the phone, just don’t cut it with inferior networks.
In the case of total household income, there is a large disparity between China and India. Although both countries have many well to do areas primarily in the cities, they also have a large population of rural poor. But China has made many more advances in upgrading its economy over the past decade than India has. As a result, China has nearly twice the median household income of India.

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Do Household Incomes Make a Difference?
To compare the effect of household incomes, we calculated the number of devices deployed per median household income for both China and India. While not a perfect measure, it is a way to do an equalization of the potential across the two countries by equalizing the economics. We found that China has nearly two times the number of smartphones deployed per dollar of median family income as does India.

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Or interpretation of the above indicates that Chinese families are willing to spend more of their discretionary income on smartphones than Indian families do, including potentially purchasing more than one device per household. Why is that? Partially it’s a values issue (smartphones seem to be more of a status symbol in China). But it may also be due to an infrastructure issue, which is the next indicator we’ll analyze.

How Does Cellular Infrastructure Effect Smartphone

There is a disparity between higher capability 4G/LTE networks in China vs. India. To assess if this has an impact, we looked at the availability of fast cellular networks that power the smartphones that people are purchasing.

While various estimates of China’s availability of 4G are fairly consistent, getting good estimates for India proved more difficult and varied widely. We used a figure we believe to be realistic. The comparison shows that China has nearly twice the 4G coverage of India.

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For a more balanced comparison, we created an equalization factor for the difference in available coverage. We calculated the number of smartphones being deployed as a percentage of available 4G/LTE coverage. This is an attempt to equalize for the number of devices connected to faster networks, which would favor higher end devices. What we found was that China had nearly twice as many smartphones connected vs. India per percent of high speed network deployed.

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Drawing Some Conclusions
So what does all this mean? Based on the above data, we expect that Apple (and higher end smartphones in general) will sell at significantly reduced numbers in India than they do in China. Despite India having fewer smartphones in use and therefore having more upside, it also has a lower level of network capability necessary for best use of higher end smartphones. And it has lower median household income making it more difficult for families to purchase a higher end device, or to buy multiple devices.

In most parts of the emerging world, Android has captured about 85%-90% of the smartphone market. That limits potential Indian sales for Apple even further even though its holds the vast majority of the remaining market share. A comparison of the factors we calculated above shows that the Indian market has significantly less sales volume potential than China in the short to medium term.

Microsoft Build: Opportunities Taken, Opportunities Lost

Microsoft held its annual developer Build conference and Satya Nadella took the lead in opening the event with his usual keynote address. Overall, there were some very compelling announcements made and I am quite impressed with where Nadella is taking Microsoft. Microsoft’s new focus is setting on a path for a great future — I’m not sure I would have said that three years ago.

Some of the most compelling announcements revolved around the coming Anniversary Edition of Windows 10 which should be available later this summer and free to all users of current Windows 10. Included will be an integrated authentication capability extended through the Edge browser and available to web apps. Fully integrated inking capability and an SDK that allows frictionless use of the pen in apps, aided by Cortana and cognitive services promise to take inking to new levels of usefulness. There are many more hooks in Cortana to make integration of concierge services accessible by apps and make computer functions much more human-friendly. A big capability for enterprises, in particular, is providing a desktop app converter to take legacy apps and enable them with the modern user interface to emulate a universal app. This alone will be a major boon to enterprise adoption of Windows 10-based mobility (mostly on tablets where our research shows enterprise really wants to use Windows based devices). A major impact in AR/VR/3D solutions was enabled through the imminent release of HoloLens, a breakthrough product for Microsoft. Finally, a series of cognitive computing services based in the cloud app devs can tap into to add capabilities to their solutions. All in all, an impressive number of compelling technology announcements.

But in my opinion, an opportunity was lost in not discussing and offering additional technology solutions for some major challenges facing developers, especially enterprise developers. Some of the biggest opportunities lost were in security and privacy, which were barely mentioned (other than in the Hello/Edge hookup). Much more could have been done (or at least hinted at) using Microsoft’s growing list of cognitive services. Following is my brief list of what else should have been included.

App Security
The keynote talked about how the anniversary version of Windows 10 will allow more secure authentication via Hello and Edge to other web apps. But big security holes exist in most apps. What can Microsoft do to make sure app developers actually create secure apps via better analysis of how they interact with the OS and tools for testing known weak points? Many app devs are not security experts and having Microsoft put some form of stake in the ground would be helpful to assist the developers at the same time reassuring end users of a stronger commitment to securing computing interactions.

How will new version of Windows better protect my security and privacy?
Why wasn’t the need for multi-factor authentication better addressed? Why wasn’t Cortana and cognitive able to assist with that task, say to find a way to ensure it’s me logging into my machine and/or apps? This is a critical need as identity theft is the major security threat to most users and enterprises. Microsoft could set a new standard if it extended the cognitive umbrella to better protecting the end user experience by allowing developers to access such tools.

Malware monitoring
Why not a way for cognitive, knowledge-based systems to actually monitoring what I’m doing and what I’m connecting to and make sure (as best as possible) I am not doing something not normal for me. This would indicate a bad actor running on my machine. It would be a great way to protect against some of the ransomeware – allow Cortana to notify me before I take unusual actions. This is analogous to what banks do for our credit cards, and could help immensely with attacking malware. It’s not easy, but Microsoft could have at least taken a step in that direction with its cognitive and learning based services.

Seamlessly moving between devices
I’m talking about going beyond Continuum (which wasn’t even mentioned). Why not get cognitive to help understand when I move to another device and act as a concierge to make it easy for me to accomplish? With more devices coming online, this ease of transfer would be a huge benefit, even if it’s only available on Windows-powered platforms.

Better management for enterprise users
Build is a developers conference, so perhaps this is not the best place to do so. But a statement about the future direction of device and app management (not in the Microsoft store, but for enterprises) would have been welcome here. The management market is changing and with more and more devices coming on line from diverse manufacturers, including IoT. It would have been a good place for Microsoft to start talking about this important topic

IoT more generally
Other than HoloLens, there was essentially no mention of IoT and how that will effect things. Yes, the universal app platform is supposed to take care of that (write once, run anywhere), but not all devices will be Windows powered. How is Microsoft helping to make the IoT revolution easier for developers and for companies (Xamarin helps but is not enough)? Many of the cloud, analytics and cognitive services will be critical to IoT success, but that wasn’t really a topic here.

I understand that Build is a developer conference and there is just so much content you can put into a keynote. And many of the above are very challenging issues to solve. But it would have been quite useful (and well received) if Microsoft had addressed some of these major compelling issues. Hopefully, that will happen in the near future. But I see this as a lost opportunity for Microsoft to have taken a major leadership position in the market.

HP Aims to “Reinvent” Mobile

HP recently announced its new Elite X3 convertible smartphone that can become a notebook or a desktop through use of smart adapters and wireless technology. Running Windows 10, it’s targeted at enterprise users who want portability but are not able to get all their work done on a smartphone form factor. It sports some impressive technology, including the latest Qualcomm Snapdragon 820 processor with 4GB of memory, a huge 4150 maH battery, a Gorilla Glass 4 9.6” edge-to-edge high res display, full Cat 6 LTE modem, dual SIM capability, and Mil Std 8 durability. To compliment and extend the core device, HP has created a desk solution that allows the phone to rest in a dock and provide connectivity via Display Port and Ethernet to a full size display and keyboard as well as corporate networks. HP also created a mobile extender (called ME-Dock) that essentially coverts the device into a 12.5″ laptop.

HP is going for the Swiss Army Knife approach with this device. It believes users would prefer a single device that can be configured “on the fly” to the user’s needs and circumstances. Such handheld convertible approaches have been tried before (all the way back to Palm days) with limited success. HP is betting this time is different, driven by the adoption and standardization on Windows 10. But there are a few challenges to this strategy.

First, Windows 10 is not all that good at legacy apps. To fix this, HP includes a VDI environment it OEM’s from Citrix, which it calls HP Workspace. This is more than just Microsoft Continuum, as it is a full VDI solution that can run any Windows app loaded on the virtual server. However, and this is a major issue, it only works in an on-line scenario. If users want to interact with a legacy app, say on an airplane with no WiFi, they cannot. This may be the kiss of death for some users wanting to work with legacy corporate apps, as they can’t be natively loaded on the device (Windows 10 running on a Qualcomm chip only supports the newer Windows 10 native universal app environment).

Second, HP has not announced pricing for any of this yet. Given the high performance features of the device, it appears it will be fairly expensive. And given that a user would have to buy multiple components to make it into both a smartphone and a desktop/notebook replacement, it may be cost prohibitive. HP is betting it will still cost less than buying a feature rich smartphone and a business class 2-in-1 or Ultrabook class machine.

Third, the size of the device puts it squarely into the upper end of the phablet range, not as a replacement for the popular smartphones in the 5-6 inch range. While phablet class devices are picking up in popularity, especially with business users who can utilize the bigger screen, the majority of users still purchase a smaller, more “svelte” device. Can a device, sized in the range of smaller tablets, be competitive as a smartphone communications device with users?

Fourth, many users of smartphone devices rely on a growing list of apps available from the various app stores. Running Windows 10 means this device will have access to far fewer apps, both for business and personal use. This has been a shortcoming of Windows phones for some time and it is likely many potential users would not find this an acceptable substitute for their iOS or Android-powered devices. Even if this is primarily targeted at enterprise users, the availability of personal apps is still a driving factor for device selections (hence the whole BYOD movement).

Finally, to take full advantage of the benefits of Windows 10 requires new apps be compliant across all form factors. However few companies have redesigned their apps for this new universal app requirement. Given the history of business apps, it will take many years before the majority of such enterprise apps are available, hence the need for HP Workspace. But will companies want to deploy yet another infrastructure product, even if it is relatively easy to do?

HP is taking a gamble on an approach that might have appeal to the growing number of users who are burdened with having to use several devices to get their jobs done. Clearly, this is not a device for the mass consumer market. But the price and performance of this product will have a major impact on acceptance.

Bottom line: It is encouraging that HP is trying to regain its reputation for innovation of years past. But this tablet sized device may just be too big for a majority of users replacing their smartphones. Further, the need for convenience apps so prevalent in the Android and iOS ecosystem will be a limiting factor for many mobile users. Clearly this is innovative and a major addition to HP’s product line. But acceptance (and success) is not assured.

Microsoft Surfaces Compelling New Devices

Today, Microsoft launched its revamped device line. Since taking over the reins at Microsoft, Satya Nadella has focused on developing a class of devices that shows off the strength of its brand and underlying Windows 10 OS. Under the device division leadership of Panos Panay, Microsoft is well on the way to achieving that vision and moving the bar from being just a provider to a premium brand.

Today it launched the next generation Fitness Band, two new Lumia mobile smartphones, showed next generation HoloLens capabilities, announced a revamped Surface Pro, and previewed a brand new Surface Book 2-in-1 laptop replacement.

Microsoft has hit a home run with their devices this time around. Attacking the high end of the market with “halo devices”, it is establishing a position for “best in class” products and related services. Microsoft Band is not another “me too” fitness band and has the price to prove it ($249). The Microsoft Lumia phones with groundbreaking features/performance will appeal to business users (especially with Continuum smart docking capabilities through the Display Dock). The update to Surface Pro shows a continuation of Microsoft trying to push the limits in form, functionality and innovation, and the improvements in processing power, battery life, screen resolution and keyboard/pen will be compelling to the higher end, primarily tablet-oriented users. The newly introduced Surface Book may actually be the most compelling of the products launched. It re-imagines what a laptop can be, with an innovative accessory GPU that enables engineering tasks and gaming previously unimaginable in a thin/light form factor with impressive 12-hour battery life.

These announcements will shake up the market. Although everyone likes to point to Apple as being the best tech innovator, I think, after today’s announcements, the new crown needs to go to Microsoft in the markets it has identified as being critical (no doubt I will get many arguments against this position). In my opinion, Microsoft is taking the battle directly to Apple’s doorstep and has thrown down the gauntlet to say you’re not the only innovator out there. Frankly, Microsoft has left Google in the dust (although no doubt Google has the means and the will to catch up, with its new phone and tablet devices a good first step).

Microsoft’s market strategy is right on. Instead of being a volume player in a cut-throat market (e.g., tablets, phones, laptops) with minimal margins, it has chosen to reinvent those markets in its own image. Although Intel “invented” the 2-in-1 class of notebooks (along with Ultrabooks), the market has been slow to take off, mainly due to a lack of true innovation and too high a price for what users’ received. Microsoft introduced the revolutionary Surface Pro to demonstrate what could be done with some forward thinking and engineering of out-of-the-box products and the 2-in-1 market has doubled in the past year alone. With Windows 10 now hitting its stride to actually showcase what these devices can do (Windows 8 was a poor performer and a hard to use product that few liked), the market should become even more robust.

Microsoft is not trying to compete directly with its customers in general purpose hardware but it is serving notice to traditional OEMs (e.g., Dell, HP, Lenovo) that, if they won’t innovate and drive the market in the direction Microsoft wants it to go, Microsoft will. These new products are literally a kick in the butt to OEMs to start innovating. Microsoft certainly has no interest in putting them out of business and competing at the low to mid tier, but Microsoft has correctly seen a lack of understanding that there is a compelling need for higher end devices (the equivalent of Lexus or Mercedes in cars) that isn’t being adequately served, especially in the high end of the business market. It is this area where Microsoft is squarely targeting its devices and where it will be successful.

Make no mistake, MSFT could not have pulled off 30% more power, 12-hour battery life and twice the performance of a MacBook Pro in its new Surface Book without the 6th generation Intel core chips and the Nvidia GeForce GPU built into the Surface Books. Microsoft is saying this is what 2-in-1s should have been all along, and here is the products to prove it can be done. The price of the Surface Pro (starting at $899) and Surface Book (starting at $1499) puts them in the premium range, but the Surface Book does for the moribund laptop market what Tesla did for cars. With high end 8 and 6 core Qualcomm Snapdragon chips in its Lumia phones, Microsoft is saying processing power is important and price should not be a reason to make underpowered, low-performance devices.

I expect the new devices to be very popular with the high-end buyers who look for form, fit and function above price. While this is a relatively small portion of the overall market, it is the same “luxury goods” market other product segments have gone after for years and that has not been well served by the computer industry fixated on volume at all cost. Apple has known this for some time with a selected, targeted attack on the higher end consumer with its products (then ultimately letting the higher end products trickle down to the mid-priced range). Microsoft has now awakened a higher end market that is not locked into Apple’s ecosystem, with users willing to either switch, or who already have a preference for Windows but were waiting for compelling products to urge them into action.

Microsoft knows that, instead of imitating Apple as it tried to do in the past, its focus must be on differentiating. Attack them if you will, but there are still many Windows users out there who have no intention of switching. Microsoft is determined to keep them.

Tablets in the Enterprise: Do Windows or Android Stand a Chance?

Are tablets really taking hold in the enterprise? Are they replacements for a PC or supplemental? While tablet sales have been shrinking of late, does this mean companies are no longer enamored with deploying them? Finally, for those looking at tablets, has Apple already won or do Microsoft (Windows) and Google (Android) still have hope?

Let’s take a closer look at the tablet market. There seems to be a belief that, because Apple’s iPad has a large early start in enterprise adoptions, it will continue to dominate the market for the foreseeable future. While I don’t buy into that vision, it’s important to look at facts rather than just speculate. Android has a lot of momentum due to the sheer number of suppliers and devices available and it’s likely to do well despite early issues with security and non-compatible versions. But Windows is more problematic. Early Windows-based tablets from HP, Dell etc., were less than stellar performers and Windows 7 wasn’t exactly tablet friendly. But with the launch of Windows 10, has this perception (and future reality) changed? Can tablets that aren’t iPads make inroads in the enterprise market?

To find out, we recently completed an online survey of 231 medium to large enterprises in the US. While we asked a number of questions on various topics related to mobile devices and software, one of the key areas of inquiry we included was to acquire quantitative data about the various options organizations have in tablets and what their future plans were. What we found was interesting.

We asked the respondents to indicate what percentage of their workforce currently had a tablet and what that percentage would be in three years. To simplify (and allow easy multiple choice survey responses), we provided a fixed selection of deployment ranges: 0%-10%, 11%-25%, 26%-50%, 51%-75%, or 76%-100%. From this data, we were able to calculate not only the deployment rates but also a growth rate for the next three years. We obtained this data for iPads, Android, and Windows-powered tablets.

For our purposes, we assumed those choosing the 0%-10% range have minimal to no installation of tablets in the workforce (that doesn’t mean there are no tablets being used – just not sanctioned workplace production units). Those selecting the 76%-100% range indicated a nearly full deployment of workplace tablets. We also assumed the higher ranges were selected in those companies that see tablets as a general deployment option, while the lower ranges represented those organizations who see tablets as a work-specific (or application-specific) requirement.

Figure 1 indicates the results for Windows-based tablet adoption currently, in three years, and the overall growth rate. Figure 2 indicates the same results for iPads and figure 3 indicates the results for Android-based tablets. (As an aside, we have similar data for smartphone adoption, but we’ll leave that for another time).

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What does the data show? While starting from a smaller base, the highest growth rate for tablet deployments in fully deployed or nearly fully deployed workplaces was Windows, followed by iPad and then by Android. It’s important to note this is growth rate, not number of devices, but it still indicates a significant growth in units, especially in those organizations who are leaning towards full tablet deployment across the user population.

The three year deployment rates show Windows and Android gaining on the iPads in the higher deployment rate organizations (76%-100%) — 23.8% for Windows, 32.9% for iPad, and 25.5% for Android. While the gains are impressive for Windows and Android given their current smaller base, this indicates to us that those companies engaged in deploying tablets to the full workforce still favor iPads.

In the 51%-75% deployment range, iPad (18.6%) loses to Android (21.6%) in devices selected and Windows (18.2%) is nearly equal to the iPad share. This indicates to us that a mid-level deployment of tablets in companies not fully engaged in “tablets for all” are much more likely to obtain alternatives to iPads and are open to implementation of Windows and Android tablets for their needs. This is most likely a result of a “solution sell” where a specific problem is addressed either as an extension of existing infrastructure compatibility or through a complete solution offered by a vendor.

So what’s the bottom line? These results confirm our expectations that the large market advantage of iPads in the workplace will fade over the next three years. The market will become a closer competitive race, with Android and Windows-powered devices picking up a significant share of organizational deployments. The data also suggests that not all organizations view the various tablet options the same and indeed, we found there are significant differences among various verticals (which we will save for a future discussion). Finally, size of deployments matter when devices are selected, indicating those organizations that have less than complete deployments of tablets (deployment to the general population) are much more likely to choose a solution based on HW and SW availability from vendors (task specific deployments).

The data also suggests that the notion tablets are general replacements for notebook and desktop PCs is false. Neither do they appear to be general replacements for smartphones. This is borne out by the data above suggesting many tablets used within enterprises are solution specific deployments and not general purpose computing platforms, such as traditional PCs are (this is also borne out by many conversations I’ve had with staff at companies in the midst of using tablets).

What isn’t yet clear is how 2 in 1 devices (notebooks that allow the screen to be separated and act as a tablet) will affect the market. Nearly all of these will be Windows-powered (with perhaps a few Chromebooks included and unless the iPad Pro gets categorized as a 2-in-1). So I’d expect some overlap with pure tablets in enterprises. But this form factor will also have an effect on the sale of notebooks (they are, after all, a notebook when docked).

Nevertheless, we expect to see many of the gains in Windows in the mid-tier deployment ranges be re-focused on 2 in 1s as they look both for solution specific tablet functions and general purpose computing (PC) platforms. So the PC form factor is not dead and being replaced by the tablet form factor, nor do we expect to see a huge uptick in general tablet sales to enterprise users over the next three years, instead seeing them used mostly for solution specific needs.

ARM-ing the Enterprise

The ARM ecosystem is the king of mobility, with the vast majority of smartphones and most tablets being powered by ARM based devices. While enterprises are often adopting ARM powered devices through BYOD, vendors creating solutions to meet enterprise challenges are increasingly broadening the scope and breadth of products. Certainly the x86 ecosystem is not dead, nor will it simply disappear. Its leading proponent, Intel, is fighting back strongly with next generation Atom chips and software optimizations. But while mobility is leading the charge in expanding ARM’s influence in the enterprise, the “Enterprise of Things” (EoT) and the approaching implementation of personal clouds and distributed/local area clouds will have great impact over what gets deployed in the next 2-3 years.

Where is the market going?
Over the next 2-3 years we will see a significant volume market develop for microservers for distributed cloud apps, including both remote office and IT delivered enterprise solutions. BYOS (bring your own server) solutions will follow in the path of BYOD and users will increasingly employ microservers as consolidation points and small processing stations for their expanding mix of devices (we expect users to have 5-6 regularly used devices within 1-2 years). Smartphones often serve this requirement today, but will not be adequate for the longer term needs of more complex devices. Not every device will have a direct connection to the cloud, as this is bandwidth and data inefficient, yet the volume of devices/connections present acute challenges to enterprise security requirements of VPNs, identity, data integrity, etc. Devices will often connect to personal area cloud servers for staging to broader cloud based services, as well as utilizing localized pre-processing, analytics and data consolidation. While the primary function of these microservers will be I/O intensive, increasingly strong CPU/GPU requirements will come into play for software and application enablement.

Where will the ARM ecosystem find success in emerging enterprise deployments?
We expect many of these micro server and distributed cloud products to be powered by ARM chips, although there will be a significant amount of low powered x86 based solutions as well, particularly in those situations where software availability/compatibility is key. Further, we expect the majority of enterprise-class tablets to be running Android within the next 1-2 years, and most will be powered by an ARM based chip. Windows based tablets, and especially those powered by x86 chips, will remain a minority, with 20-30% of the enterprise market in 3 years. Finally, the majority of emerging “things” will be ARM powered, and enterprise focused “things” will be designed and deployed for special use cases.

However, there will also be some areas ARM will have great difficulty penetrating. One primary area is notebook-like enterprise devices. We don’t expect clamshell, cloud-only, Chromebook-like devices to be widely popular among enterprise users primarily because not everything will be done in the cloud, and because on-board Microsoft Office will continue to dominate the knowledge worker’s workstation needs. Despite some preliminary inroads from Google and others trying to change this behavior, we don’t expect it to get beyond a small minority of users (5%-10%).

Which ARM vendors are key to the enterprise?
There currently is a large ecosystem and many suppliers for ARM technology. But the vast majority is focused on the consumer space. Who is well positioned to carry the ARM banner into the enterprise and lead in supplying enterprise-class chips? The current leader in smartphone and tablet chips, Qualcomm, doesn’t seem to be interested in providing more server-centric solutions, at least not at this phase of the market. Leadership (and market enablement) would take a company with expertise in enterprise-level solutions. We believe AMD is in good position to go after the enterprise market, now that they have established their “ambidextrous” philosophy (e.g., produce products nearly equivalent with either x86 or ARM cores to meet the needs of its customers). A focus on enhanced CPU and GPU functionality, an area AMD knows well, will be critical to the enterprise marketplace. With primary relationships already established with enterprise device and server vendors like Dell, HP and Lenovo, who would in any case lead the charge in enterprise deployments, they stand to gain from the expansion of ARM-based solutions tailored for the unique requirements of the enterprise (e.g., computational enhancements, security, manageability, ease of deployment). This is a market where AMD could show leadership and competitive differentiation, while avoiding low margin commodity supplier status for at least for the next 3-4 years.

Is x86 dead?
Despite the expected expansion of ARM into the enterprise, x86 is not dead by any means. Low power x86 is still attractive in many markets and product areas (e.g., notebooks, Windows tablets and higher end Android tabs, medium to larger servers). Further, microservers based on x86 architecture are making their way into the market. Intel for one is fighting ARM’s incursions by placing increased emphasis on addressing this market with new targeted products expected over the next 1-2 years. But x86 will increasingly be sharing the enterprise IT space with ARM over the next 2-3 years as ARM’s expanding ecosystem invades the traditionally exclusive x86 space.

Conclusions: The next 2-3 years will see a large number of enterprise targeted devices in the client and microserver space powered by ARM chips. Chip vendors that best understand and engineer products for enterprise needs will see strong growth and AMD could be one of the leaders in this area. The change from a mostly x86/Windows marketplace to a more diverse ecosystem will see enterprises going through many of the pains and challenges they have already faced with BYOD. The transition requires enterprises start to plan now for the groundswell coming in the next 2-3 years and to build the required strategies and expertise needed to meet the challenges.

Has Nokia Raised the Bar Enough?

Yesterday in London at its big conference. Nokia’s CEO Stephen Elop announced its next generation phones, Lumia (Windows Phone 7.5 based) and Asha (S40 based), which we were told means “Hope” in Hindi. Although Asha is an interesting device for many emerging markets, it’s the Lumia that is most important to Nokia’s future and the announcement the market was anxiously awaiting. So while Nokia did introduce two new Windows Phone smartphones of nice design (the Lumia 800 for the premium market and a slightly less costly version the 710), and three Symbian devices meant for the market between feature phones and smart phones, overall the announcements at Nokia World disappointed on a number of accounts.

First, Nokia did not confirm when and what would go to North America – only that there would be a portfolio of devices released early next year (once LTE stabilizes they said). What does that say about the commitment from the carriers to Lumia? If you have a halo device (where Lumia is being positioned) and it’s not being sold in the largest market, what does that say about your market position?

Second, there was no mention of how Nokia would differentiate from other Windows Phone vendors, other than with a better camera, navigation application and music services. Not enough. Samsung makes a nice Windows Phone, as does HTC. Why would a consumer choose a Nokia device?

Third, the pricing was set at a premium pricing level (420 Euros, or about $599 US before subsidies). Nokia is competing against the market leaders at about the same pricing level. There is no advantage taken by Nokia in trying to get back into the marketplace at a reasonable price with a premium product. It’s roughly the same price as iPhone 4S after subsidies and this could be a tough sell.

Fourth, what about the enterprise? There was no mention of how they would help with management and security for corporate. customers other than pointing to Microsoft tools and capabilities. IT doesn’t need yet another device to work with when there is already so much diversity from BYOD. IT wants help and expects some advantage from key suppliers. Microsoft management tools for mobile are inferior and especially so when looking at a diverse environment. Where were the partnership announcements with MDM vendors that would have indicated the serious nature Nokia places on business?

Fifth, what about Windows 8? That is the future (Windows Phone 7.5 is a place holder until the next-gen devices come out in 12-18 months and bridge the PC, tablet and phone markets). This would have been a great opportunity to make a strategy statement at a high level at least, even if not a detailed statement. And it would have indicated an acknowledgement by Nokia of the importance it places in the partnership with Microsoft.

Finally, where was Microsoft’s endorsement? No one from Microsoft spoke during the keynote. No doubt Microsoft wants to keep some distance to not offend its other OEMs, but if this is such a close partnership, where is the “love”?

So I’m left with many questions after the announcements. How do the new devices fit into a diverse environment in an enterprise setting? Where are the enterprise tools to deploy, activate secure and manage them? What is the Nokia Value Add on top of plane Windows Phone? What did they do to enhance the Windows Phone platform beyond what Microsoft offers? Nokia seemed to show once again that they understand how to make appealing hardware, but fell short in service offerings that could differentiate them in the market, especially with the important business user.

Bottom Line: Nokia World was really Nokia’s coming out party. It was meant to show a revitalized company. They did offer a couple of new phone families (one Windows Phone, one Symbian). But they missed the opportunity to show what Nokia represents longer term, how it adds value to the Microsoft standard OS features, and what it will do to differentiate in the market from both other Windows Phone makers and the Android and iPhone market. Nokia a missed opportunity.

Intel and Google – Who Needs Who?

Android is very popular and has made great inroads in the market in smart phones (with more than 50% share) and is beginning to pick up traction in tablets as well with a plethora of new devices due out shortly. But Android itself has not always been that good a performer, and some of the SW choices Google has made while developing the various versions have been troublesome.

It is clear Android can use some assistance in optimizing the code and user experience (one of the primary reasons Google is buying Motorola is for its engineering talent that has had a major positive impact on the design and tuning of Android). But Google needs assistance in improving future versions of Android, and has a broader vision for Android than today’s phones and tablets.

Although not well understood, Intel is one of the largest SW companies in the world (they have many thousands of SW engineers). It has a unique ability to make SW and particularly OSes run extremely well and have been doing so for many years, and not just with Windows. It is a leading provider of development and compiler technology. While Intel won’t necessarily help Android run better on ARM, it can certainly make Android run great on the Intel architecture. It is already well down this path with the Android code porting and optimization work it’s been engaged in for some time.

But Google has greater ambitions for Android than powering current mobile devices. Google ultimately wants to be a leading OS provider across the board and on many form factors, including on the x86 platform powering PC and PC-like devices, and competing with Microsoft and Apple. This is an extension of Google’s “service in the cloud” strategy with clients powered by Android and Chrome and productivity apps being “optimized” for its own environment.

So the relationship between Google and Intel is key to both their long term strategies. It’s a win-win relationship if done right. It’s quite conceivable that by the time Intel is through optimizing Android code, it will run substantially better on its chips than on ARM. But any help Intel provides Google for Android reliability and performance optimization on x86 will most likely also help it running on ARM since the efforts will be repurposed, and this ultimately helps Android on ARM as well.

The bottom line is both companies actually have a great deal to benefit from a close relationship. Intel gets to show of its upcoming devices for mobile form factors running a highly optimized (for its chips) version of Android. And Google gets a path to higher end systems and optimized code to access its services. And users get choice and a more compelling experience. So there really are no “junior partners” in this relationship. Both have much to gain.

Microsoft’s “Can’t Lose” Mobile Strategy


Microsoft has been trying to recapture momentum in mobile after ceding the early market leadership it had 5-6 years ago due to its lack of adequate investment and resultant inability to stay competitive. And its renewed focus and execution over the past 1-2 years is indeed enabling it to make progress. But behind the scenes Microsoft has a strategy to become a driving force in the market and will likely produce more profits than many of the handset manufactures. And this is regardless of whether Windows Phone is successful.

Microsoft makes no mobile hardware, and licenses its OS software to several handset manufacturers (e.g., HTC, HP, Samsung). Its latest version of Windows Phone 7 (Mango) is refreshingly competitive and shows a lot of promise. And its distribution partnership with Nokia could propel it into a leadership position (although we remain skeptical that it will happen as quickly as some predict). Many observers focus on Microsoft’s attempt to gain ground on the competition by increasing its anemic smartphone OS market share. But the number of smartphones now being sold with windows mobile or the newer Windows Phone 7 is pretty small (various estimates are less than 5% of the market). Even at an estimated $10-$15 license fee per phone, the stakes are pretty small for a company the size of Microsoft.

But licensing the OS should actually be Microsoft’s back-up position. Frankly, there is far more money to be made other places. First, Microsoft is now putting a squeeze on all of the Android handset makers by enforcing its patent portfolio and claiming all such manufactures must license Microsoft IP to prevent infringement. And the handset makers are coming on board. Deals have been struck with HTC to start, and negotiations continue with others (e.g., Samsung). It is quite likely that Microsoft will be able to extract licensing fees (eventually) from all the manufacturers. And at $5 per handset produced, that is a staggering sum.

Adding to this revenue stream is yet another lucrative deal for Microsoft. Virtually every smartphone made (including Apple and Google Android, but with the exception of BlackBerry) licenses ActiveSync as the way to both connect to email (via Exchange) and to control the device (e.g., kill, provision). Microsoft controls 80%-85% of the enterprise email market. Without ActiveSync capability, the devices are unable to work in the business world, and what high end smartphone maker wants to be excluded from the corporate world? So licensing fees of $3-$5 per smartphone device for ActiveSync licenses has huge potential.

So what does this mean for Microsoft’s revenue streams?
Currently, all versions of Microsoft powered phones sell about 12M units per year (based on smartphone sales of approximately 400M worldwide estimated in 2011*, and 3% market share for Microsoft). That amounts to $180M best case (at $15 per device). There will be an estimated 140M Android phones (based on 35% market share) and 80M iPhones (based on 20% market share) sold this year worldwide. That amounts to $660M – $1.1B for ActiveSync licensing. And it’s likely that Microsoft will get many (if not all) of the Android vendors to pay royalties, so that’s another potential $700M (at $5 per device). This is not guaranteed, given it has not yet signed licenses with many of the vendors and some vendors in emerging markets may not care if they are infringing. But even if Microsoft only generates half of this amount, it’s a substantial sum. The OS revenues look paltry by comparison to potential IP revenues. And IP doesn’t require the substantial investment in updates and improvements that the OS does, making it even more lucrative.

Further, the smartphone market is likely to at least double over the next 3 years when we expect Microsoft to capture 15% of the smartphone market (primarily with Nokia). So 15% of an 800M device smartphone market = 120M devices and at $15 per device for licensing the OS = $1.8B in revenue. But the number of devices to be sold on Android = 45% of the total or 360M and on Apple = 15% or 120M. And at $8-$10 license fee per Android device and $3-$5 per Apple device, that’s $3.2B – $4.2B in revenue.

And moreover, even though Bing is currently way behind Google search in market share, it is now the favored platform for phone manufacturers distancing themselves from Google’s dominance. We expect Bing to capture 25% of mobile search in 3 years. This represents a huge revenue opportunity for Microsoft, although it’s hard to quantify at this point.

Bottom Line:
Microsoft can generate a lot of revenue from its deal with Nokia. But even if it doesn’t, the number of licensees of its IP will guarantee Microsoft a sizeable chunk of the mobile revenue stream. And that doesn’t even include the potential for revenues generated by cloud-based and Bing centered services. So Microsoft stands to gain handsomely from mobile, whether it succeeds with its own OS or not. It really can’t lose.

*Market Statistics and Projections (compiled and adapted from various estimates):

  • Current Smartphones shipped worldwide 1Q 11 = 100M units. Estimated 400M total units in 2011.
    Approx Shares: Android = 35%, Apple = 20%, RIM = 15%, Symbian (Primarily Nokia) = 25%, Windows Mobile = 3%, Other = 2%
  • Future Smartphone estimates for 2014 = 800M units
    Shares: Android = 45%, Apple = 15%, RIM = 15%, Windows Phone (Primarily Nokia) = 15%, Other = 10%
  • Intel vs. ARM – The Battle Is Just Beginning

    This is a guest contribution from Jack Gold the founder and principal analyst at J.Gold Associates, LLC an information technology analyst firm based in Northborough, MA, covering the many aspects of business and consumer computing and emerging technologies. Learn more about J.Gold Associates here.

    The market seems to think that that the folks at ARM and its licensees (TI, Nvidia, Qualcomm, Marvel, Apple, et. al.) are on the verge of attacking Intel where it is most susceptible – the PC and server space. Indeed, ARM is making inroads with low power designs, and has a virtual monopoly on mobile devices. But the path to PCs and Servers is a very different path than smartphones and tablets. And clearly, Intel doesn’t think it can afford to concede any territory, which is why it is pushing back hard on the mobile “heartland” of ARM. So let’s step back and see what Intel has going for it vs. the ARM ecosystem.

    Many observers have a bias towards ARM and are discounting Atom’s potential for success in phones and tablets, I think that Atom really does have a chance to succeed and thrive. Not perhaps in the current version, but in the next generation of chips Intel will launch in the next 6-12 months. And I believe that Intel will stay very far ahead of ARM in the race for PCs and even high end tablets. Why? Here are some reasons.

    First, Intel’s huge investment in processing technology is not putting it at a disadvantage as some have suggested. Actually it’s the other way around. The ARM camp is relying on the foundries to make the process improvement investment for them. But after they’ve matched Intel’s recent investment of $15B or so, they still will have to recoup that investment, and that will mean higher chip costs to the fabless chip vendors (no free lunch here). At the end of the day, process advantage does matter. It’s how Moore’s Law has remained in play, and process advantage means higher performing chips at lower power and eventually lower cost (as yields increase). And Intel’s recent development of 22nm and 3-D transistors means its lead is increasing and has a two year (or more) advantage on the competition.

    Second, the conversation comparing ARM to Intel usually turns to RISC vs. CISC. I thought we settled that argument years ago with Transmeta and MIPS before that. But I guess not. The bottom line is that with more complex systems that have increasingly complex computing requirements, longer and more complex instruction sets improve performance. This is what Microsoft
    found out years ago when it suspended development of Windows on RISC. Yes, they now say they will have Windows 8 running on ARM. But the question remains, what version and what features? There is no doubt in my mind that the highest end and more performance oriented versions of Windows will remain focused on the x86 architectures. And don’t forget that ARM isn’t even on 64 bits yet. Imagine a server with a large database running on a 32 bit RISC architecture compared to a full featured 64 bit CISC version. So as functions get more complex, specialized instructions and HW additions give x86 (including Atom) an advantage unless ARM adds the same HW and SW extensions.

    The third issue is compatibility. There is a perception that ARM is compatible across platforms and vendors, and clearly its not. As a result, look at the upgrade problem being faced by older devices in the market, and even among devices from the same manufacturer. In fact, different licensed versions of the ARM architecture have incompatibilities. And deep licensees (e.g., Qualcomm) are building their own architecture that is supposed to be compatible with other vendors’ chips (but is it?). ARM fragmentation is an issue usually not discussed. But it is real no less.

    Finally many think that Intel is a chip company, and forget that it has tens of thousands of SW engineers on staff. This allows it to create the best compilers in the industry, and to optimize ports to its platform well beyond what others can do. And WindRiver gives Intel incredible breath in tools and designs. Many perceive Google’s commitment to Android on Atom as lukewarm, but Intel has invested considerable resources to port and optimize Android for its platforms, albeit a bit late. And even though current WP7 doesn’t run on Atom, it is quite likely that WP Next (e.g. Windows 8) could easily do so if there is OEM demand, which there well may be especially in the tablet space. Finally, now that Intel has McAfee in its stable, it is very likely to create industry-leading HW-enabled security features that users will find appealing and competitors will have trouble duplicating.

    Of course MeeGo remains a sore spot for Intel, especially after Nokia’s rejection of the OS for its devices. It is not clear MeeGo will ever get out of the niche markets it now is targeting. But clearly some vendors see it as an alternative to Android’s (and Apple’s) hegemony, especially in emerging markets. So while it may never achieve the huge numbers of units that its competitors will ship, it will nevertheless have a credible niche to exploit. But Intel is not riding MeeGo as its only path to success.

    Bottom Line: For Intel, it’s about the ecosystem. As code gets more complex, it’s increasingly difficult to produce and manage, especially across multiple platforms. This is problematic for both OS developers and ISVs who want to port their apps (look at how many versions of Android apps there are, and not just for OS versions numbers, but also for different devices from different manufacturers). Intel’s x86 consistency is a strong point and fragmentation plays to its strength. Certainly I’m not signally the death knell for ARM. But those who minimize Atom’s future potential are making a mistake.