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Larry Dignan, Andrew Nusca and Rachel King
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Smartphone shake-out looms as hardware herd may thin

By | December 8, 2011, 3:00am PST

Summary: All the tablets and smartphones are starting to look alike and software integration is everything. That fact will spell doom for a few hardware-centric smartphone manufacturers.

HTC’s sales are plunging. Nokia is betting the company on Windows Phone devices. Research in Motion can’t get out of its own way. Welcome to the upcoming shakeout in the smartphone market. Any vendor that’s relying primarily on hardware may want to duck.

Simply put, the wireless industry is tapped out on the hardware front. Snazzy screens. Check. Speedy chips. Check. Better battery life. Getting there. Tablets? They all kind of look alike after a while.

In other words, it’s becoming increasingly difficult—if not impossible—to differentiate a mobile device based on hardware. Even software is a two horse race with Apple and Google’s Android. On the Android side of the smartphone industry, the commoditization race is going to kill a few device makers.

HTC is already in a bind. Sales fell 20 percent in November. The problem: HTC is competing with Samsung and Motorola Mobility for 4G devices in the U.S. and Apple’s iPhone 4S too. Without hardware differentiation HTC doesn’t have much because all the Android software looks the same.

Motorola Mobility would be in the same boat, but Google will shield the company a bit. Whatever happens to Motorola will be a rounding error on Google’s balance sheet. RIM and Nokia also compete on hardware. Both companies aspire to have unique software and a vibrant app ecosystem, but it’s a tough road for them against Android and Apple.

Toss in the fact that the smartphone industry may just be out of ideas and you really have to start thinking about a device death pool. In the end, Samsung and Apple appear to be the only sure smartphone bets at the moment.

Perhaps the Consumer Electronics Show changes my perception in January. But for now I see some colossal train wrecks ahead. All the tablets and smartphones are starting to look alike and software integration is everything. The shelf life for the latest greatest smartphone is about 5 minutes and getting shorter by the day—especially since most of these hardware vendors lack the ecosystem and services to compete.

2012 may be the year we see some hardware-focused mobile players stumble in a big way.

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Topics

Google Android, Smart Phone, HTC Corp., Smartphone, Smart Phones, Cellular Phones, Handhelds, Mobile Security, Consumer Electronics, Personal Technology, Hardware, Larry Dignan

Larry Dignan is Editor in Chief of ZDNet and SmartPlanet as well as Editorial Director of ZDNet's sister site TechRepublic.

Disclosure

Larry Dignan

Larry Dignan has nothing to disclose. He doesn’t hold investments in the technology companies he covers.

Biography

Larry Dignan

Larry Dignan is Editor in Chief of ZDNet and SmartPlanet as well as Editorial Director of ZDNet's sister site TechRepublic. He was most recently Executive Editor of News and Blogs at ZDNet. Prior to that he was executive news editor at eWeek and news editor at Baseline. He also served as the East Coast news editor and finance editor at CNET News.com. Larry has covered the technology and financial services industry since 1995, publishing articles in WallStreetWeek.com, Inter@ctive Week, The New York Times, and Financial Planning magazine. He's a graduate of the Columbia School of Journalism and the University of Delaware.

For daily updates, follow Larry on Twitter.

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RE: Smartphone shake-out looms as hardware herd may thin
non-biased 13th Dec
@William Farrel Yeah, because WP7 devices are just flying of the shelves aren't they wink
View in thread
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RE: Smartphone shake-out looms as hardware herd may thin
dheady@... 8th Dec
And what happens when the only major threat to Apple loses its 'clone wars'?
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RE: Smartphone shake-out looms as hardware herd may thin
kirovs@... 8th Dec
@dheady@...
Keep dreaming
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Some of patents are blatantly infringed, the judge confirmed this
dderss 8th Dec
@kirovs@... ... so the dreams could only be about how Samsung all of sudden will get pass with this IP theft.
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RE: Smartphone shake-out looms as hardware herd may thin
WinTard 8th Dec
@dderss

Or that Apple's patents gets legally invalidated, in effect revealing they were only claiming IP theft, when they stole it in the first place.
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RE: Smartphone shake-out looms as hardware herd may thin
Dodgson1832 Updated - 8th Dec
@WinTard

Or put another way, they tried to copyright things in the public domain. You CANNOT copyright basic designs (4-door car, stool, tablet design based on a magazine or book, a book (bunch of sheets of paper with a cover), an 8-ounce cup).
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@wintard
Bruizer 8th Dec
Or Apple's IP claims are fully validated. The naive will think the patents cover ideas or are public domain when they actually cover methods.

Chances are, Apple will win about 50% of the claims and loose about 50%.
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RE: Smartphone shake-out looms as hardware herd may thin
Pete "athynz" Athens 8th Dec
@Wintard What will you do when Apple's claims against Samsung are upheld?
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And Pete, what will you iPhone fans do...
cornpie 8th Dec
@Pete "athynz" Athens@... ...if Apple is successful at suing everyone else out of business? No matter how much you love your iPhone, do you really want to see a market with no competition and no other options?
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I don't think Apple is trying to do so...
James Quinn 8th Dec
@cornpie... "IF" I did I would be against such an action. Still like IBM, MS and even Intel Apple has to walk the line when it comes to any kind of monopoly illegal actions and this would draw the attention of the government unwanted attention if they were trying to do so. So again I doubt it.

Pagan jim
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RE: Smartphone shake-out looms as hardware herd may thin
rparker009 8th Dec
@dheady@... Dont you mean when the masses learn that apple sucks.
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RE: Smartphone shake-out looms as hardware herd may thin
Pete "athynz" Athens 8th Dec
@rparker009 While I disagree with people like Wintard he at least brings relevant facts and does not needlessly troll like you do. In other words suck it rparker009.
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RE: Smartphone shake-out looms as hardware herd may thin
Pete "athynz" Athens 8th Dec
@rparker009 While I disagree with people like Wintard he at least brings relevant facts and does not needlessly troll like you do. In other words suck it rparker009.
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Get a life dude.
GeoffMichael 8th Dec
@rparker009 Troll somewhere else. Judging by the acceptance of the iPad and iPhone, it doesn't appear that the "masses" think Apple sucks.
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RE: Smartphone shake-out looms as hardware herd may thin
Yuniverse 9th Dec
@rparker009 Even the fandroids should realize that Apple does not suck. They're just in denial.
I, myself, like Apple products and like the competition as well. As such, I won't claim, "Android sucks."
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RE: Smartphone shake-out looms as hardware herd may thin
Crion629 8th Dec
"Without hardware differentiation HTC doesn???t have much because all the Android software looks the same."

Really, Larry? Last time I checked, Android's problem was fragmentation, not just of OS version but every vendor has a different core look. HTC has Sense, Motorola has Blur, etc. Apple's mobile devices all look the same. iOS has the same look time and time again.
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RE: Smartphone shake-out looms as hardware herd may thin
Rick_Kl Updated - 8th Dec
@Crion629 Larry should not have singled out Android, without pointing out that it is even worse for the OEMs that make Wp7 phones. These OEMs have little control over a product they must support. I think after Barnes and Nobel successfully gets the patents nullified, many OEMs will either get payments from Microsoft, or completely drop their Wp line of products.
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Staff
RE: Smartphone shake-out looms as hardware herd may thin
Larry Dignan 8th Dec
@Rick_Kl I should have rewarded that. My point is all the android devices all sort of rhyme now. Am I going to buy an HTC handset for HTC Sense. Umm no. Motorola's Blur...Not. In a few years, we're all running around with $99 Pantech and ZTE 4G devices.
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Too bad you only see what you want to see
William Farrel Updated - 8th Dec
@Rick_Kl
I guess you didn't notice the moment Samsung produced WP7 models, they overtook Apple as the top phone manufacturer.

I wonder why? wink
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RE: Smartphone shake-out looms as hardware herd may thin
Dodgson1832 8th Dec
@Rick_Kl

IF the patents are nullified (and I seriously think we need to rethink how software patents are handed out... I mean, the lifespan of a device is 3 years at most so you should not get a patent that lasts more than 3 years. If you haven't come up with something new by that point you have a crappy product. Apple is trying to do the same thing with their patent litigation and if you remember IE6.... I really don't want that happening again) then I think they still will sell WP7 devices. To not do so will leave them in the cold if it does take off and they need some sort of leverage against Google.
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RE: Smartphone shake-out looms as hardware herd may thin
sjaak327 8th Dec
@Rick_Kl

I am betting that Barnes and Noble will have zero chance at that. There are bigger manufacturers who are paying Microsoft. Nobody wants to be called a thief. B&N are going to pay, and they will now probably pay a lot more, silly buggers.
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RE: Smartphone shake-out looms as hardware herd may thin
spaulagain 8th Dec
@Rick_Kl

BS, They have a lot of control over the look and quality of the hardware just like any PC manufacturer.

I bought my HTC WP7 because felt strong, and looked decent. Especially compared to the Samsung available at the time. The Samsung had a great screen, but everything else about it felt super cheap.

Nokia's Lumia is a GORGEOUS phone, and I can't wait to get my hands one or a similar model. But it will run the same OS my current phone has. So obviously there is more to a phone than just the OS.

Hardware manufacturers can differentiate themselves, they just have to try harder.
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RE: Smartphone shake-out looms as hardware herd may thin
Rick_Kl Updated - 8th Dec
@sjaak327 I think you are delusional. Microsoft started with companies that already had Windows Mobile phones. The patents Microsoft is using are beyond lame, and there is plenty of prior art to throw these patents out. I am also willing to bet if it was anyone other than Microsoft, you would be singing a different tune.

spaulagain what are you yammering about? These companies have to support Windows mobile Phone 7, which is an expense, yet they have no control over the quality of it. When Barnes and Nobel wins, there will be little incentive to pay Microsoft for the privilege of providing support for another half baked Microsoft Product.
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There are a few people that won't like this blog.
Bruizer 8th Dec
It is 100% spot on but it will take a few people here that fail to admit that many handset divisions/companies are starting to fail.
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RE: Smartphone shake-out looms as hardware herd may thin
Dodgson1832 8th Dec
@Bruizer

Ummm... since year to date sales are up for all of them I would like to see more than ONE month's evidence.
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So you claim if you sell 1 million widgets and loose $0.001 per widget...
Bruizer 8th Dec
@Dodgson1832

That is all that counts? What counts is profits not unit or gross sales.
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RE: Smartphone shake-out looms as hardware herd may thin
dave95. Updated - 8th Dec
The way Google and Android fans talk about the "platform", for years, you would think every Android manufacturer is a raging success story pulling in billions every quarter. Why would HTC sales be plunging when Android is "winning", according to Schmidt. Why would Google feel the need to save Moto if Android is such a success? Why is LG struggling? I thought boasting about market share and activation numbers was all that mattered?
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RE: Smartphone shake-out looms as hardware herd may thin
DonRupertBitByte 8th Dec
@dave95.

Since when is Google officially "Saving Moto" as you project as if it was a known fact?
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Get that think outa here
Robert Hahn 8th Dec
@DonRupertBitByte
If you think Motorola Mobility has a bright future as a standalone company, then you must know things that Motorola itself (which set the division adrift in its own boat) does not know.
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Did MMI have a bright future?
Bruizer 8th Dec
@DonRupertBitByte

Based on more losses than profits, I am thinking the answer was no.
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Motorola was havine losses or marginal profits for years; before Google, ..
dderss 8th Dec
@DonRupertBitByte: ... there was not even real chance how the company would survive in the long term. Google will cover the losses.
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one word..
theFunkDoctorSpoc Updated - 8th Dec
@dave95. PROFIT!! or actually lack there of.. none of those guys actually make any profit at selling phones.. Moto has been breaking even or losing money since it was spun off.. LG and Sony-Ericsson same thing.. they don't actually make any profit selling phones.. all you have to do is look at their earnings reports...much less tablets.. they will only continue to do that for so long.. Sony and Apple are the only manufactures that have figured out how to make a profit selling mobile devices.. Apple makes a healthy profit and Samsung is just scraping by by increasing market share by eating the other Android manufactures for lunch..
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RE: Smartphone shake-out looms as hardware herd may thin
Dodgson1832 8th Dec
@theFunkDoctorSpoc

Goodness me... evidence please. I wish the reporter also used evidence, but meh:

http://www.bgr.com/2011/10/31/htc-reports-record-q3-smartphone-shipments-up-93/

Q3 operating margin of 14.9%. That is good. Not Apple good but still good.
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RE: Smartphone shake-out looms as hardware herd may thin
theFunkDoctorSpoc Updated - 8th Dec
@Dodgson1832
Here's your proof...
http://www.asymco.com/2011/07/29/apple-captured-two-thirds-of-available-mobile-phone-profits-in-q2/

off of 7% marketshare of all cellphones (all cellphones not just smartphones) but makes 66% of the profits.. again, that's not just smartphone.. all cell phones..
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@ Dodgson1832: HTC has bigger issues.
Bruizer 8th Dec
@theFunkDoctorSpoc

Last quarter, HTC seems to have filled the channel (stuffed) and they do not have new product due until the end of next quarter or beginning of 2 quarters away.

The problem is, once a cell phone company slips into no profit, they have never recovered. Ever. HTC must maintain their cost structures since once a company dips to the red, their customers (the carriers) start putting downward pressure on their selling price exaggerating a companies issues.
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RE: Smartphone shake-out looms as hardware herd may thin
theFunkDoctorSpoc 8th Dec
@Dodgson1832.. As for HTC.. have a look at the outlook.. revenue growth of 79% year over year.. and outlook for 20% year over year.. and this is in the quarter that includes Christmas.. the righting is on the wall..
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RE: Smartphone shake-out looms as hardware herd may thin
mozerd@... 8th Dec
@dave95. Inteligent observations --- market share and gross margins are the only factors -- the rest is noise.
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RE: Smartphone shake-out looms as hardware herd may thin
dave95. Updated - 8th Dec
Delete
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RE: Smartphone shake-out looms as hardware herd may thin
rkmoray 8th Dec
I think your missing the point. A shake up and out is not what is looming, it is a strategic change that will be the game changer. Hardware manufacturers will create software that will only run on their hardware (without root, mods, etc). A perfect example of this is the launcher motoblur and Sence. Depending on your preference you will select the hardware that has the extra custom software you prefer.
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Has that been driving profit and growth for those companies.
Bruizer 8th Dec
@rkmoray

If you miss that point, you missed the entire point of the blog post. HTC, Moto, LG have had custom layers for a long time and it is not saving them.
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If it doesn't work...
Robert Hahn 8th Dec
@Bruizer
Which raises questions as to whether Nokia can indeed differentiate its phones from white-label commodity WP devices. Or Samsung, for that matter, who is already outselling them in units.
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RE: Smartphone shake-out looms as hardware herd may thin
Dodgson1832 8th Dec
@Bruizer

Once again... many of these companies are actually doing really well right now. Motorola's issues all are because they were not prepared for the shift to smartphones. Their loses have been as they have transitioned to smartphones.
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@Dodgson1832: What top tier companies besides Samsung and Apple?
Bruizer 8th Dec
LG? Nope. More losses than profits.

HTC? They have lowered their forecasts twice this quarter and they may have to do so again. This bums me out because I expected more from them.

Apple? Yep. Looks to be a banner quarter.

SE? Nope. Sony thinks they can make a go of it. They did better when they were doing WinMo. Android devastated them.

Motorola? Nope. Being purchased by Google saved them from eventual death.

Samsung? Yep. Looks to be a banner quater.

RIM? Nope.

Nokia? Nope.

What companies are doing "really well right now?" Selling lots of units does not help if you are loosing profit on every sale. Motorola has been doing smartphones for 7+ years. Transitioning? They have been doing this for 7+ years.

If ZTE decides to get into the high-end Android market, HTC better have a great plan besides Beats Audio.
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I prefer...
wkulecz 8th Dec
@rkmoray

I prefer unadulterated Android and the lowest priced hardware at the performance level I need.

The free market doesn't exist to guarantee any business a profit, or any worker a job. Its purpose is to insure goods and services are available to meet demands at the lowest possible price (highest efficiency)

Government backed meddling via "patents" is what is mucking things up.
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"Government backed meddling via 'patents' is what is mucking things up."
Bruizer Updated - 8th Dec
@wkulecz

So you prescribe a free for all where all inovation stops because no company will willing invest time, money and effort into coming up with any new methods.

In your sad and sick world, we would still be interacting with green screen terminals and punch cards hooked up to time-shared mainframes.
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More government meddling:
pdq 8th Dec
@wkulecz

I mean, is copyright law the pits or what? I want to resell music files off of my CDs and text files off my eBooks to anyone who will send me money, and damn meddling government is saying I can't. I mean, really! - I'm just trying to insure that these goods and services are available to meet demands at the lowest possible price.
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RE: Smartphone shake-out looms as hardware herd may thin
mrxxxman 8th Dec
@rkmoray That's somewhat true, but many users also don't want the added UI layer to Android, but like the hardware. Hardware design is at the beginning stage. Just look at the latest two upcoming examples of hardware design. The ASUS Transformer Prime tablet is already sold out and it hasn't even shipped yet. The Samsung Galaxy Note has gotten rave reviews and is also in very high demand because of it's hardware specs.
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RE: Smartphone shake-out looms as hardware herd may thin
non-biased 13th Dec
@mrxxxman I love that old argument, it sold out so it must be good. If you have 5 units available and you sell out internationally that isn't exactly a success even though it did indeed sell out. Not dismissing either unit just pointing out that unless you have actual sales figures selling out means nothing.
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RE: Smartphone shake-out looms as hardware herd may thin
Ididar 8th Dec
Yeah, because there's only a couple TV brands and microwave brands and so on. Lets face facts, after markets start to mature they've all copied off each other so much that they all end up looking the same except for some minor tweaks. But, that doesn't mean that there's no variation and selection. You'll always have the cheaply priced options, the over priced options, the middle of the road, and so on.

I swear that on one hand you have people screaming that they need a third or fourth viable alternative in the smartphone market yet at the same time others declaring the whole market stagnant and dead. Guess what ... nobody knows what is happening but a lot of people have an over-inflated sense of ego about what they think will happen or is happening.
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RE: Smartphone shake-out looms as hardware herd may thin
Rick_Kl Updated - 8th Dec
The problem ZDNet bloggers all seem to miss, is that without hardware companies, these smartphones could not exist. The companies that will face the biggest challenge, are the ones that are betting the farm on software they do not control.
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Not News...
theFunkDoctorSpoc Updated - 8th Dec
If anyone was looking at earnings report for the past 2yrs.. most of these companies haven't made any money on smartphones (or tabets) in the last two years.. Moto, LG, Sony-Ericsson.. have been breaking even or losing money for the last 1-2 years.. HTC was in the black, but just recently moved into the red.. the look of HTC's phones hasn't changed in years.. they did look different, but now they just look old and tired.. RIM has been bleeding market share and has had shrinking margins that have put it into the red.. Nokia is a basket case.. this is nothing new.. Samsung and Apple seem to be the only companies that know how to make money at this game.. sure the others are moving handset.. but they can't move handsets and make money doing it.. which is the whole point! and they can't do that forever..
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RE: Smartphone shake-out looms as hardware herd may thin
non-biased 13th Dec
@William Farrel Yeah, because WP7 devices are just flying of the shelves aren't they wink

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