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2014 H1 changes on the Worldwide Tablet market

Versus as it was presented in The lost U.S. grip on the mobile computing market, including not only the device business, but software development and patterns of use in general [this same blog, April 14, 2014]:

imageSource: The Tablet Market Ticks Up In The Second Quarter
With White Box Shipments Leading The Way [Business Insider, July 25, 2014]

      • The global tablet market ticked up in the second quarter of 2014, although growth is still near the market’s historical low.
  • Shipments hit about 44.3 million during the period, yielding year-over-year growth of 11%.

While an improvement from the previous quarter, consider that the tablet market had year-over-year growth of nearly 80% in the same quarter just a year ago.

    • Although it lead all vendors with about 27% market share, Apple’s iPad shipments declined 9% year-over-year during the period. That marks the second consecutive quarter in which iPad shipments have declined.
    • Samsung’s tablet shipments grew a paltry 1% for the period to hit 8.5 million units in the second quarter. That is an enormous slowdown compared to the growth rates it was achieving just a year ago. In the second quarter of 2013, Samsung tablet shipments grew 300% year-over-year.
    • Both Apple and Samsung lost market share during the quarter. Apple’s leading market share fell from 33% to 27% while Samsung’s dipped two percentage points to 17%.
    • “White-box” vendors = 41% of market

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    Worldwide Tablet Market Grows 11% in Second Quarter on Shipments from a Wide Range of Vendors, According to IDC [IDC press release, July 24, 2014]

    The worldwide tablet grew 11.0% year over year in the second quarter of 2014 (2Q14) with shipments reaching 49.3 million units according to preliminary data from the International Data Corporation (IDC) Worldwide Quarterly Tablet Tracker. Although shipments declined sequentially from 1Q14 by -1.5%, IDC believes the market will experience positive but slower growth in 2014 compared to the previous year.
    “As we indicated last quarter, the market is still being impacted by the rise of large-screen smartphones and longer than anticipated ownership cycles,” said Jean Philippe Bouchard, IDC Research Director for Tablets. “We can also attribute the market deceleration to slow commercial adoption of tablets. Despite this trend, we believe that stronger commercial demand for tablets in the second half of 2014 will help the market grow and that we will see more enterprise-specific offerings, as illustrated by the Apple and IBM partnership, come to market.”
    Despite declining shipments of its iPad product line, Apple managed to maintain its lead in the worldwide tablet market, shipping 13.3 million units in the second quarter. Following a strong first quarter, Samsung struggled to maintain its momentum and saw its market share slip to 17.2% in the second quarter.  Lenovo continued to climb the rankings ladder, surpassing ASUS and moving into the third spot in the tablet market, shipping 2.4 million units and grabbing 4.9% markets share. The top 5 was rounded out by ASUS and Acer, with 4.6% and 2.0% share, respectively. Share outside the top 5 grew to an all time high as more and more vendors have made inroads in the tablet space. By now most traditional PC and phone vendors have at least one tablet model in the market, and strategies to move bundled devices and promotional offerings have slowly gained momentum.
    “Until recently, Apple, and to a lesser extent Samsung, have been sitting at the top of the market, minimally impacted by the progress from competitors,” said Jitesh Ubrani, Research Analyst, Worldwide Quarterly Tablet Tracker. “Now we are seeing growth amongst the smaller vendors and a levelling of shares across more vendors as the market enters a new phase.”

    Worldwide Tablet Shipments Miss Targets as First Quarter Experiences Single-Digit Growth, According to IDC [IDC press release, May 1, 2014]

    Worldwide tablet plus 2-in-1 shipments slipped to 50.4 million units in the first calendar quarter of 2014 (1Q14) according to preliminary data from the International Data Corporation (IDC) Worldwide Quarterly Tablet Tracker. The total represents a sequential decline of -35.7% from the high-volume holiday quarter and just 3.9% growth over the same period a year ago. The slowdown was felt across operating systems and screen sizes and likely points to an even more challenging year ahead for the category.
    “The rise of large-screen phones and consumers who are holding on to their existing tablets for ever longer periods of time were both contributing factors to a weaker-than-anticipated quarter for tablets and 2-in-1s,” said Tom Mainelli, IDC Program Vice President, Devices and Displays. “In addition, commercial growth has not been robust enough to offset the slowing of consumer shipments.”
    Apple maintained its lead in the worldwide tablet plus 2-in-1 market, shipping 16.4 million units. That’s down from 26.0 million units in the previous quarter and well below its total of 19.5 million units in the first quarter of 2013. Despite the contraction, the company saw its share of the market slip only modestly to 32.5%, down from the previous quarter’s share of 33.2%. Samsung once again grew its worldwide share, increasing from 17.2% last quarter to 22.3% this quarter. Samsung continues to work aggressively with carriers to drive tablet shipments through attractively priced smartphone bundles. Rounding out the top five were ASUS (5%), Lenovo (4.1%), and Amazon (1.9%).
    With roughly two-thirds share, Android continues to dominate the market,” said Jitesh Ubrani, Research Analyst, Worldwide Quarterly Tablet Tracker. “Although its share of the market remains small, Windows devices continue to gain traction thanks to sleeper hits like the Asus T100, whose low cost and 2-in-1 form factor appeal to those looking for something that’s ‘good enough’.”

    Digitimes Research: Global tablet shipments reach 55.06 million units in 2Q14 [press release, July 23, 2014]

    There were 55.06 million tablets shipped globally in the second quarter of 2014, decreasing 4.5% on quarter but increasing 17.9% on year, according to Digitimes Research.
    The shipments consisted of 14.1 million iPads, down 10% on quarter, and 18.96 million units launched by vendors other than Apple, down 12.7% on quarter. Additionaly, 22.3 million white-box units were shipped in the second quarter.
    Shipments of small-size Wi-Fi-enabled units in particular slowed down in the second quarter and the time period was also a slow season for shipments. Supply chains also faced yield issues and Samsung saw less-than-expected shipments for its 8-inch tablets. Tablets sized 10-inch and above have seen shipment increases since fourth-quarter 2014.
    Taiwan tablet makers meanwhile surpassed 20 million in shipments for brand tablets during the second quarter, which made up 60% of overall brand tablet shipments during the time period, added Digitimes Research.

    Digitimes Research: Global tablet shipments drop 30% sequentially in 1Q14 [press release, April 23, 2014]

    Global tablet shipments reached only 58.56 million units in the first quarter of 2014, down almost 30% sequentially, but up 4.6% on year despite Samsung Electronics trying to boost both its high-end and entry-level tablet shipments and Lenovo pushing shipments to meet its fiscal 2013 targets. Seasonality, Apple seeing weaker sales, and the tablet market growing mature were also factors that affected shipment performance, according to Digitimes Research.
    Shipments of iPads suffered both on-year and sequential drops to reach 15.85 million units in the first quarter. Non-iPad tablet shipments were 22.31 million units, down 20% sequentially, but up over 30% on year thanks to strong demand for Samsung, Lenovo and Asustek’s Windows-based models. White-box tablet shipments reached only 20.4 million units due to seasonality and labor shortages during the Lunar New Year holidays.
    Apple and Samsung remained the top-two vendors in the first quarter, but the two players’ market share gap was less than 6pp. Lenovo was the third-largest vendor, followed closely by Asustek Computer in fourth. Amazon and Google dropped to number seven and ten.
    Taiwan ODMs shipped 22.15 million tablets together in the first quarter, accounting for less than 60% of global shipments. The largest maker, Foxconn Electronics (Hon Hai Precision Industry), and second-largest Pegatron Technology both suffered significant shipment drops due to lower-than-expected demand for iPad. Quanta saw increased shipments in the quarter because of Asustek’s T100 tablet, and returned to being the third-largest maker in Taiwan. Compal Electronics’ shipments suffered a sharp decline because Amazon’s Kindle Fire range is approaching the end of its lifecycle, while Acer is turning to cooperate with China-based makers, Digitimes Research‘s figures showed.

    Digitimes Research: Global white-box tablet shipments down in 1Q14 [press release, May 12, 2014]

    There were 20.4 million white-box tablets shipped globally in the first quarter of 2014, decreasing by 27.4% on quarter and by 2.4% on year, according to Digitimes Research.
    The decrease in shipments was mainly because most white-box vendors are based in China and there were fewer working days in the first quarter due to the Lunar New Year holidays, Digitimes Research pointed out.
    Of the shipments, 7-inch models accounted for 70.5%, 7.85/7.9-inch ones 21.3%, 8- to 9-inch ones 4.2%, above 9- to 10-inch 2.9%, above 10-inch 1.1%.
    Due to strong demand in emerging markets including India, Indonesia, Thailand, Russia and Eastern Europe, global white-box tablet shipments in the second quarter of 2014 will increase 14.2% on quarter and 45.6% on year to 23.3 million units.
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    2014 H1 changes on the Consumer Tablet Market in China

    imageVersus as it was presented in Section I. of The lost U.S. grip on the mobile computing market, including not only the device business, but software development and patterns of use in general [this same blog, April 14, 2014]

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    Satya Nadella on “Digital Work and Life Experiences” supported by “Cloud OS” and “Device OS and Hardware” platforms–all from Microsoft

    Update: Gates Says He’s Very Happy With Microsoft’s Nadella [Bloomberg TV, Oct 2, 2014] + Bill Gates is trying to make Microsoft Office ‘dramatically better’ [The Verge, Oct 3, 2014]

    This is the essence of Microsoft Fiscal Year 2014 Fourth Quarter Earnings Conference Call(see also the Press Release and Download Files) for me, as the new, extremely encouraging, overall setup of Microsoft in strategic terms (the below table is mine based on what Satya Nadella told on the conference call):

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    These are extremely encouraging strategic advancements vis–à–vis previously publicized ones here in the following, Microsoft related posts of mine:

    I see, however, particularly challenging the continuation of the Lumia story with the above strategy, as with the previous, combined Ballmer/Elop(Nokia) strategy the results were extremely weak:

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    Worthwhile to include here the videos Bloomberg was publishing simultaneously with Microsoft Fourth Quarter Earnings Conference Call:

    Inside Microsoft’s Secret Surface Labs [Bloomberg News, July 22, 2014]

    July 22 (Bloomberg) — When Microsoft CEO Satya Nadella defined the future of his company in a memo to his 127,100 employees, he singled out the struggling Surface tablet as key to a future built around the cloud and productivity. Microsoft assembled an elite team of designers, engineers, and programmers to spend years holed up in Redmond, Washington to come up with a tablet to take on Apple, Samsung, and Amazon. Bloomberg’s Cory Johnson got an inside look at the Surface labs.

    Will Microsoft Kinect Be a Medical Game-Changer? [Bloomberg News, July 22, 2014]

    July 23 (Bloomberg) — Microsoft’s motion detecting camera was thought to be a game changer for the video gaming world when it was launched in 2010. While appetite for it has since decreased, Microsoft sees the technology as vital in its broader offering as it explores other sectors like 3d mapping and live surgery. (Source: Bloomberg

    Why Microsoft Puts GPS In Meat For Alligators [Bloomberg News, July 22, 2014]

    July 23 (Bloomberg) — At the Microsoft Research Lab in Cambridge, scientists track animals and map climate change all on the off chance they’ll stumble across the next big thing. (Source: Bloomberg)

    To this it is important to add: How Pier 1 is using the Microsoft Cloud to build a better relationship with their customers [Microsoft Server and Cloud YouTube channel, July 21, 2014]

    In this video, Pier 1 Imports discuss how they are using Microsoft Cloud technologies such as Azure Machine Learning to to predict which the product the customer might want to purchase next, helping to build a better relationship with their customers. Learn more: http://www.azure.com/ml

    as well as:
    Microsoft Surface Pro 3 vs. MacBook Air 13″ 2014 [CNET YouTube channel, July 21, 2014]

    http://cnet.co/1nOygqh Microsoft made a direct comparison between the Surface Pro 3 and the MacBook Air 13″, so we’re throwing them into the Prizefight Ring to settle the score once and for all. Let’s get it on!

    Surface Pro 3 vs. MacBook Air (2014) [CTNtechnologynews YouTube channel, July 1, 2014]

    The Surface Pro 3 may not be the perfect laptop. But Apple’s MacBook Air is pretty boring. Let’s see which is the better device!

    In addition here are some explanatory quotes (for the new overall setup of Microsoft) worth to include here from the Q&A part of Microsoft’s (MSFT) CEO Satya Nadella on Q4 2014 Results – Earnings Call Transcript [Seeking Alpha, Jul. 22, 2014 10:59 PM ET]

    Mark Moerdler – Sanford Bernstein

    Thank you. And Amy one quick question, we saw a significant acceleration this quarter in cloud revenue, or I guess Amy or Satya. You saw acceleration in cloud revenue year-over-year what’s – is this Office for the iPad, is this Azure, what’s driving the acceleration and how long do you think we can keep this going?

    Amy Hood

    Mark, I will take it and if Satya wants to add, obviously, he should do that. In general, I wouldn’t point to one product area. It was across Office 365, Azure and even CRM online. I think some of the important dynamics that you could point to particularly in Office 365; I really think over the course of the year, we saw an acceleration in moving the product down the market into increasing what we would call the mid-market and even small business at a pace. That’s a particular place I would tie back to some of the things Satya mentioned in the answer to your first question.

    Improvements to analytics, improvements to understanding the use scenarios, improving the product in real-time, understanding trial ease of use, ease of sign-up all of these things actually can afford us the ability to go to different categories, go to different geos into different segments. And in addition, I think what you will see more as we initially moved many of our customers to Office 365, it came on one workload. And I think what we’ve increasingly seen is our ability to add more workloads and sell the entirety of the suite through that process. I also mentioned in Azure, our increased ability to sell some of these higher value services. So while, I can speak broadly but all of them, I think I would generally think about the strength of being both completion of our product suite ability to enter new segments and ability to sell new workloads.

    Satya Nadella

    The only thing I would add is it’s the combination of our SaaS like Dynamics in Office 365, a public cloud offering in Azure. But also our private and hybrid cloud infrastructure which also benefits, because they run on our servers, cloud runs on our servers. So it’s that combination which makes us both unique and reinforcing. And the best example is what we are doing with Azure active directory, the fact that somebody gets on-boarded to Office 365 means that tenant information is in Azure AD that fact that the tenant information is in Azure AD is what makes EMS or our Enterprise Mobility Suite more attractive to a customer manager iOS, Android or Windows devices. That network effect is really now helping us a lot across all of our cloud efforts.

    Keith Weiss – Morgan Stanley

    Excellent, thank you for the question and a very nice quarter. First, I think to talk a little bit about the growth strategy of Nokia, you guys look to cut expenses pretty aggressively there, but this is – particularly smartphones is a very competitive marketplace, can you tell us a little bit about sort of the strategy to how you actually start to gain share with Lumia on a going forward basis? And may be give us an idea of what levels of share or what levels of kind unit volumes are you going to need to hit to get to that breakeven in FY16?

    Satya Nadella

    Let me start and Amy you can even add. So overall, we are very focused on I would say thinking about mobility share across the entire Windows family. I already talked about in my remarks about how mobility for us even goes beyond devices, but for this specific question I would even say that, we want to think about mobility not just one form factor of a mobile device because I think that’s where the ultimate price is.

    But that said, we are even year-over-year basis seen increased volume for Lumia, it’s coming at the low end in the entry smartphone market and we are pleased with it. It’s come in many markets we now have over 10% that’s the first market I would sort of say that we need to track country-by-country. And the key places where we are going to differentiate is looking at productivity scenarios or the digital work and life scenario that we can light up on our phone in unique ways.

    When I can take my Office Lens App use the camera on the phone take a picture of anything and have it automatically OCR recognized and into OneNote in searchable fashion that’s the unique scenario. What we have done with Surface and PPI shows us the way that there is a lot more we can do with phones by broadly thinking about productivity. So this is not about just a Word or Excel on your phone, it is about thinking about Cortana and Office Lens and those kinds of scenarios in compelling ways. And that’s what at the end of the day is going to drive our differentiation and higher end Lumia phones.

    Amy Hood

    And Keith to answer your specific question, regarding FY16, I think we’ve made the difficult choices to get the cost base to a place where we can deliver, on the exact scenario Satya as outlined, and we do assume that we continue to grow our units through the year and into 2016 in order to get to breakeven.

    Rick Sherlund – Nomura

    Thanks. I’m wondering if you could talk about the Office for a moment. I’m curious whether you think we’ve seen the worst for Office here with the consumer fall off. In Office 365 growth in margins expanding their – just sort of if you can look through the dynamics and give us a sense, do you think you are actually turned the corner there and we may be seeing the worse in terms of Office growth and margins?

    Satya Nadella

    Rick, let me just start qualitatively in terms of how I view Office, the category and how it relates to productivity broadly and then I’ll have Amy even specifically talk about margins and what we are seeing in terms of I’m assuming Office renewals is that probably the question. First of all, I believe the category that Office is in, which is productivity broadly for people, the group as well as organization is something that we are investing significantly and seeing significant growth in.

    On one end you have new things that we are doing like Cortana. This is for individuals on new form factors like the phones where it’s not about anything that application, but an intelligent agent that knows everything about my calendar, everything about my life and tries to help me with my everyday task.

    On the other end, it’s something like Delve which is a completely new tool that’s taking some – what is enterprise search and making it more like the Facebook news feed where it has a graph of all my artifacts, all my people, all my group and uses that graph to give me relevant information and discover. Same thing with Power Q&A and Power BI, it’s a part of Office 365. So we have a pretty expansive view of how we look at Office and what it can do. So that’s the growth strategy and now specifically on Office renewals.

    Amy Hood

    And I would say in general, let me make two comments. In terms of Office on the consumer side between what we sold on prem as well as the Home and Personal we feel quite good with attach continuing to grow and increasing the value prop. So I think that’s to address the consumer portion.

    On the commercial portion, we actually saw Office grow as you said this quarter; I think the broader definition that Satya spoke to the Office value prop and we continued to see Office renewed in our enterprise agreement. So in general, I think I feel like we’re in a growth phase for that franchise.

    Walter Pritchard – Citigroup

    Hi, thanks. Satya, I wanted to ask you about two statements that you made, one around responsibly making the market for Windows Phone, just kind of following on Keith’s question here. And that’s a – it’s a really competitive market it feels like ultimately you need to be a very, very meaningful share player in that market to have value for developer to leverage the universal apps that you’re talking about in terms of presentations you’ve given and build in and so forth.

    And I’m trying to understand how you can do both of those things once and in terms of responsibly making the market for Windows Phone, it feels difficult given your nearest competitors there are doing things that you might argue or irresponsible in terms of making their market given that they monetize it in different ways?

    Satya Nadella

    Yes. One of beauties of universal Windows app is, it aggregates for the first time for us all of our Windows volume. The fact that even what is an app that runs with a mouse and keyboard on the desktop can be in the store and you can have the same app run in the touch-first on a mobile-first way gives developers the entire volume of Windows which is 300 plus million units as opposed to just our 4% share of mobile in the U.S. or 10% in some country.

    So that’s really the reason why we are actively making sure that universal Windows apps is available and developers are taking advantage of it, we have great tooling. Because that’s the way we are going to be able to create the broadest opportunity to your very point about developers getting an ROI for building to Windows. For that’s how I think we will do it in a responsible way.

    Heather Bellini – Goldman Sachs

    Great. Thank you so much for your time. I wanted to ask a question about – Satya your comments about combining the next version of Windows and to one for all devices and just wondering if you look out, I mean you’ve got kind of different SKU segmentations right now, you’ve got enterprise, you’ve got consumer less than 9 inches for free, the offering that you mentioned earlier that you recently announced. How do we think about when you come out with this one version for all devices, how do you see this changing kind of the go-to-market and also kind of a traditional SKU segmentation and pricing that we’ve seen in the past?

    Satya Nadella

    Yes. My statement Heather was more to do with just even the engineering approach. The reality is that we actually did not have one Windows; we had multiple Windows operating systems inside of Microsoft. We had one for phone, one for tablets and PCs, one for Xbox, one for even embedded. So we had many, many of these efforts. So now we have one team with the layered architecture that enables us to in fact one for developers bring that collective opportunity with one store, one commerce system, one discoverability mechanism. It also allows us to scale the UI across all screen sizes; it allows us to create this notion of universal Windows apps and being coherent there.

    So that’s what more I was referencing and our SKU strategy will remain by segment, we will have multiple SKUs for enterprises, we will have for OEM, we will have for end-users. And so we will – be disclosing and talking about our SKUs as we get further along, but this my statement was more to do with how we are bringing teams together to approach Windows as one ecosystem very differently than we ourselves have done in the past.

    Ed Maguire – CLSA

    Hi, good afternoon. Satya you made some comments about harmonizing some of the different products across consumer and enterprise and I was curious what your approach is to viewing your different hardware offerings both in phone and with Surface, how you’re go-to-market may change around that and also since you decided to make the operating system for sub 9-inch devices free, how you see the value proposition and your ability to monetize that user base evolving over time?

    Satya Nadella

    Yes. The statement I made about bringing together our productivity applications across work and life is to really reflect the notion of dual use because when I think about productivity it doesn’t separate out what I use as a tool for communication with my family and what I use to collaborate at work. So that’s why having this one team that thinks about outlook.com as well as Exchange helps us think about those dual use. Same thing with files and OneDrive and OneDrive for business because we want to have the software have the smart about separating out the state carrying about IT control and data protection while me as an end user get to have the experiences that I want. That’s how we are thinking about harmonizing those digital life and work experiences.

    On the hardware side, we would continue to build hardware that fits with these experiences if I understand your question right, which is how will be differentiate our first party hardware, we will build first party hardware that’s creating category, a good example is what we have done with Surface Pro 3. And in other places where we have really changed the Windows business model to encourage a plethora of OEMs to build great hardware and we are seeing that in fact in this holiday season, I think you will see a lot of value notebooks, you will see clamshells. So we will have the full price range of our hardware offering enabled by this new windows business model.

    And I think the last part was how will we monetize? Of course, we will again have a combination, we will have our OEM monetization and some of these new business models are about monetizing on the backend with Bing integration as well as our services attached and that’s the reason fundamentally why we have these zero-priced Windows SKUs today.