Unpacked for Friday September 2nd, 2016

Huawei launches Nova, a new mid-range smartphone family – Carolina Milanesi

Yesterday at IFA in Berlin, Huawei launched two new colors for the P9 – red and blue – along with a new MediaPad M3 running Android and focused on music and two new smartphones — the Nova and the Nova Plus.

It is these last two devices that are particularly interesting. They are priced at 399 and 499 Euros respectively and they are a change in direction from Huawei who had been focusing on the high-end. Adding these products to the existing Honor line, which was meant to be more affordable, shows an increasing pressure on the number one Chinese brand (to get to the second leading smartphone spot fast) but also pressure in the home market to become more price competitive as vendors such as Vivo and Oppo are growing share.

While going back into the mid-tier is not necessarily a bad move, I feel Huawei might risk competing with its Honor products. While the Honor brand is online only and the Nova brand is for carrier and retail channel, consumers will still compare the two. This might end up not actually adding to the bottom line.

Some of the messaging at the press conference as well made me think there was overlap between the two brands, given the strong focus on selfies which is a key thing for the millennials the Honor 8 is aimed at addressing.

Huawei also needs to be careful balancing price and features across the portfolio to not undervalue the high-end that has brought Huawei to be seen by consumers as a leading brand.

Google’s Hardware Ambitions – Ben Bajarin
Two Google hardware related news items appeared yesterday. The first was this report that they are shelving their attempt to make a modular smartphone named Project Ara. It was hopefully obvious to most this was a bad idea and not something mainstream consumers would ever latch onto. From a research standpoint, it was not a bad idea. Trying things like this in labs often lead to new learning and potential new ideas. Many companies do research like this and understand that what they take to market in the end may be nothing like what they started out to accomplish. Somewhere along the way, they may learn something key to a future product.

The shutting down of this project seems to be a part of the broader ambitions of the first party hardware group inside Google. This group makes the Home hub and router, Pixel, Chromecast, and other hardware, both present and future. This group is reportedly planning an event on October 4th to unveil a range of new hardware products.

Google’s hardware ambitions are still unclear to me. I certainly understand what they are doing but I don’t understand why. Having had discussions with folks in their hardware group during briefings and one-on-one meetings, I’ve yet to even hear them articulate why they believe they have a role to play in first party hardware. These devices don’t appear to be reference designs for other to copy but rather, look to be attempts at an end-point Google wants to control. While I’ve yet to do research to quantify the lack of interest in the mainstream consumer market on Google-branded products, my sense at the moment is it is not high and Google’s credibility is weak in this area. However, you have start somewhere. We said the same things about Microsoft when they first made the Surface and now I feel it is a pivotal strategy for them to maintain relevance in key parts of the consumer market.

Google has yet to truly crack the consumer market with their own first party hardware but we will see if anything they launch this fall does. I remain highly skeptical.

The Artifical Intelligence Consortium – Ben Bajarin
Interesting article in the New York Times on a gathering of folks from Amazon, Google, IBM, Facebook, and Microsoft who are seeking to put together ethics standards when it comes to Artifical Intelligence. According to the article:

The specifics of what the industry group will do or say — even its name — have yet to be hashed out. But the basic intention is clear: to ensure that A.I. research is focused on benefiting people, not hurting them, according to four people involved in the creation of the industry partnership who are not authorized to speak about it publicly.

This reminds me of the early days of robots where the so-called “Asimov’s Three Laws of Robototics” were discussed. We have still yet to see robots go mainstream but those laws, created some time ago, were well thought out principles. One of my biggest frustrations with many tech companies releasing new technology is their lack of ability to truly think through all the logical conclusions. With regards to VR, AI, self-driving cars, etc., we need forums where the tough questions can be asked and the unthinkable discussed. Forward thinking companies and individuals need to be involved in these discussions and debates so we can make positive strides and put our best foot forward, not our most foolish foot forward.

Samsung Recalls Galaxy Note 7 Devices – Ben Bajarin
Samsung is recalling all devices of the Galaxy Note 7 due to some devices catching on fire because of battery issues. Here is part of their official statement:

To date (as of September 1) there have been 35 cases that have been reported globally and we are currently conducting a thorough inspection with our suppliers to identify possible affected batteries in the market. However, because our customers’ safety is an absolute priority at Samsung, we have stopped sales of the Galaxy Note 7.

Early estimates peg US and Korea sales at around 1.2 million units. From digging deeper into analyst reports on this, the estimate was the potential phone catching on fire issue is related to 24 units per 1 million. Samsung is recalling them all in both markets. The big problem here for Samsung is the financial impact, both in cost to replace the device (which BOM cost estimates to be around $300 USD) as well as the potential loss of sales which, based on historical trends for this model, could be anywhere from 2-4 million units during the second half of 2016.

One other thing I’m watching for is how the media covers the story, particularly big TV news outlets. A recall of a flagship smartphone has never happened before at this scale and it is a big deal from a consumer sentiment standpoint. The big question will be if it impacts their brand or the perception of the device enough to hurt future sales. That is why the media’s coverage of this is interesting to watch to see how it is spun.

If the recall of cars by manufacturers is any guide, the brand is not completely tarnished when this happens, as long as the customer is not the one impacted and gets their replacement in a well handled manner. For context, second half projections of the Note 7 are about 12 million units worldwide. It is worth remembering, high end devices like the Note 7 and Galaxy S series only represent ~13-15% of Samsungs total annual worldwide smartphone sales. This is why investors will not panic but will be cautious looking at the stock over the next six months as these devices, while the smallest percentage of sales, are the largest contributors of operating margin.

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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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