Update as of August 10, 2012: After acquiring the Qt commercial licensing business in March 2011 from Nokia, the Helsinki based, ~1000 people strong Digia, with 2011 sales of 121.9 million Euro, yesterday acquired all the rest of the Qt business from Nokia. More details in the Digia extends Its commitment to Qt with plans to acquire full Qt software technology and business From Nokia [Digia’s Qt Commercial Blog, Aug 9, 2012] and Digia Committed to Thriving Qt Ecosystem [KDE.NEWS, Aug 9, 2012] posts from Digia’s R&D director Tuuka Turunen. With this all pre-Windows Phone software platform commitments except the Java based S40 (evolved in the new Asha range) have strategically been revoked by Nokia.

Here is the shortest and still very comprehensive way to understand the essence of Nokia’s decision to radically change its strategy – Engadget’s video interview with Stephen Elop [Feb 15, 2011], the CEO of Nokia:

STATEMENTS IN THE ABOVE VIDEO YOU WILL FIND NOWHERE ELSE:

[00:48]: As it relates to the low-end we think regardless of how far we can push down Symbian and/or Windows Phone, which will rapidly come down in price as well, in price points, we believe there is always going to be this layer below, i.e. the absolute lowest level, highest cost-optimized approach. So Series 40 and its successors, and new work that we’ll do in that area, we think will continue to be an important part of the strategy going forward. [1:13] … [1:17] We call those ’mobile phones’ [i.e. not feature phones]. In our strategy, the Nokia strategy has three pieces to it: the smartphone strategy, which is about Windows Phone, it has what we call ’the next billion strategy’ which is about taking those first mobile experiences … at the very lowest of the price continuum, and the third part of our strategy is what we call ’the future disruptions’. Investing today to plan for to lead the next disruption beyond all the current activities we are doing today. [1:45]

[1:58]: Part of the specific relationship between Nokia and Microsoft is for us to contribute the expertise to planning, design and everything else, so that the Windows Phone product is not only a premium product but in the same way that Symbian has been pushed way down the price continuum, you’ll see us to do that very aggressively with Windows Phone as well. [2:16]

[08:07]: Our Plan B is to make Plan A successful. Just to be clear. What we’re doing is not thinking of MeeGo as the Plan B. We’re thinking about MeeGo and related development work as what’s the next generation. So to the extent that today there is a three horse race – Windows Phone, Android, Apple, and so forth – what comes next, what is the next major wave of business and technological disruption. We want to make it sure that we’re leading through that as well, and so the efforts will focus further into the future. [8:35]

Update: Nokia N9 UX [?Swipe?] on MeeGo 1.2 Harmattan [June 24, 2011]

Update: Open Letter from Purnima Kochikar to Developer Community [March 25, 2011] (emphasis is mine):

First, let’s recap what it is we announced; the three main areas of our strategy:

1. Plans for a broad strategic partnership with Microsoft on Windows Phone
2. Connecting the Next Billion
3. Future disruptive technologies

What about Symbian? What about Qt?

Understandably, these are the first questions that come to mind. Although Windows Phone will become our primary smartphone platform, we will continue to deliver a great deal of value from Symbian. We’re making investments that will help us to engage and attract existing and new Symbian users and allow us to launch new competitive smartphones.

Over the past weeks we have been evaluating our Symbian roadmap and now feel confident we will have a strong portfolio of new products during our transition period – i.e. 2011 and 2012. These devices will take advantage of the strong integration of devices and services as well as our strength in areas such as imaging and location-based services. They will also include improvements in hardware performance such as GHz+ processing capabilities and faster graphics speeds.

To further enhance the competitiveness of these products we will deliver updates to the current Symbian user experience. The first major update will arrive in summer, delivering a new home screen, new flexible widgets, new icons, a faster browser, new Navbar and a fresh look and feel to Ovi Store and Ovi Maps, including integration of social media services in Ovi Maps….

I’ve been asked many times how long we will support Symbian and I’m sure for many of you it feels we have been avoiding the question.  The truth is, it is very difficult to provide a single answer. We hope to bring devices based on Windows Phone to market as quickly as possible, but Windows Phone will not have all language and all localization capabilities from day one.

In many markets, including markets where Symbian is currently the lead smartphone platform with significant market share such as China, India, Russia and Turkey, we will continue to make our Symbian portfolio as competitive as possible while we work with Microsoft to introduce Windows Phone. For that reason certain markets will play a more significant role in selling the 150 million Symbian devices than others and we will be selling devices long after Windows Phone devices from Nokia have already started to appear in other markets. That is why we cannot give you the date when Symbian will no longer be supported.

… Qt, the development platform for Symbian and future MeeGo technology remains critically important and Nokia is committed to investment in Qt as the best toolset for those platforms and we are focusing on future developments in part by our plan to divest the commercial licensing business [“by the end of March 2011” Digia to acquire Qt commercial licensing business from Nokia [March 7, 2011]], used mainly by developers of embedded and desktop applications beyond the mobile market. [“Qt is actively used by around 3500 desktop and embedded customer companies which will be transferred to Digia upon closing. The commercial customers represent a broad range of industries, e.g. consumer electronics, finance, aviation, energy, defence and media.”]

Additionally we are readying app analytics, in-app advertising, in-app purchasing, a new browser and hardware enhancements. There are a lot of new things for developers to take advantage of in these soon-to-be-released APIs. We are continuing to explore Qt for use in other strategic investment areas as well.

WHAT IS NOT CLEAR AT ALL FROM THE VIDEO is the global market situation in all its details and nuances which forced Nokia to make such a radical change in its alltime strategies of going alone. From simple news articles it is also not clear to outsiders whether it was the best decision for Nokia or not, specifically considering the current favorite of the market, the Google Android platform. And to have a clear picture on both is more the essential. For everybody who is doubting that please first read Nokia’s radical CEO has a mercenary, checkered past [Feb 14, 2011] and after being confused with that (especially with the comments part) get yourself familiar with (emphasis is mine):

Shanzai [alt. sp. shanzhai or Shan Zai] literally means “Mountain Bandit or Fortress” [here is a very detailed wikipedia explanation] in Mandarin Chinese. It is a phenomenon that goes far beyond the simplistic view of “copycat products” and in popular Chinese cultural usage is used to describe a vendor who operates a business without observing traditional rules or practices — often resulting in innovative and unusual products or business models. Reading the stories on this website will open your eyes to a whole new business phenomenon that is affecting all of our lives whether we realize it or not.

from the Shanzai.com opened in July 2009, when it became obvious to Timothy James Brown, an IT executive working in Asia for the past 13 years, that Shanzhai (I will use rather this form as it is more general in referenced sources used below) is indeed a new business phenomenon which will start to influence the non-Chinese speaking world of the global technology in an big way. In the last two years another new name also came out for part of Shanzhai: white-box vendors, to reflect the fact that they were hard pressed (by the government) to leave the gray-market, thus to become legitimate in all respects, as well as naturally becoming larger scale operations capable of entering the international markets.

It is also worth to look at China Gray-Market Cell Phone Shipments Slow in 2011 [iSuppli press release, Dec 16, 2010] (emphasis is mine):

China’s gray-market cell phone shipments will amount to 255 million units in 2011, up 11.8 percent from 228 million in 2010. This compares to a rise of 43.6 percent in 2009.

Gray-market handsets are cell phones manufactured in China that are not recognized or licensed by government regulators. Makers of these products generally do not pay China’s value-added taxes and, therefore, profit illegally from their participation in the market.

“The object of a nationwide government crackdown, the gray cell phone market in the world’s most populous country is facing some trepidation as official scrutiny focused on illegal handsets and as consumers are starting to lose some interest in the devices,” said Kevin Wang, director of China research at iSuppli. “This created particular challenges for white-box handsets – on which gray-market dealers can put their logos. These types of phones use smuggled chips, carry no certification from China’s Ministry of Industry and Information Technology, sport fake international mobile equipment identity codes and are smuggled to Hong Kong to avoid value-added taxes.”

What growth there is in 2011 will be driven by demand from emerging countries as well as by falling average selling prices for gray handsets.

After growing in 2011, the gray market will begin to decline in 2012. This is because gray market cell phone suppliers will be unable to cut prices any further – even if they wish to win more new customers in emerging countries. Suppliers also will find themselves competing with an increasing number of locally branded original equipment manufacturers (OEMs) that provide better quality and after-sales service, iSuppli believes.

The market for gray handsets

Aside from serving domestic demand in China, gray handsets command sizable sales in other countries in the Asia-Pacific region, an area that includes Thailand, Vietnam, Indonesia and the Philippines – as well as Pakistan, a neighbor to China. And while gray-handset shipments in 2010 within China will fall to 24.2 million units, down from 33.2 million in 2009, gray-handset shipments to other Asian countries during the same period will rise to 154.4 million units, up from 110.2 million.

The market for non-gray handsets

Meanwhile, shipments from Chinese non-gray handset makers will grow by 36.4 percent in 2010 and continue to climb during the next five years. Not only will Chinese OEMs improve their global market sales – especially in the emerging countries – China’s white-box handset shipments also will keep growing. Furthermore, Chinese handset makers will win more orders from international carriers and from locally branded OEMs in the emerging markets.

Within the domestic market, China’s 3G handsets are poised for dramatic expansion – reaching 51 million units in 2010 and maintaining growth in the next five years, thanks to the continued decline of both 3G handset prices and service fees. By 2014, local 3G handsets are projected to reach 134 million units.

Read More > China’s Gray Market Handset Shipments Continue Expanding in 2011

Update: China’s innovation drive in “post-Shanzhai” era [Xinhua, March 11, 2011] (emphasis is mine)

The “Shanzhai” industry, which churns out electronic goods that imitate well-known brands, is declining even in its hotbed and birthplace in south China’s Shenzhen City.Signs that say “Shop to Let” adorned many electronic stores along Shenzhen’s Huaqiangbei Road. About one-third of Huaqiangbei’s estimated 3,000 sellers of “Shanzhai” cell phones have left the business, said Tang Ruijin, the secretary general of Shenzhen Mobile Communication Association.

The price cut of branded cell phones and the public’s growing intellectual property protection (IPR) awareness contributed to the decline of “Shanzhai.” But the heaviest blow came from China’s determination to enhance IPR protection and develop indigenous innovation, Tang said.

Sociologist Ai Jun noted that the “Shanzhai” phenomenon is a period that China and other developing countries must go through in fostering their companies’ innovative capacities. “It is a natural process to first imitate and then innovate.”

So it might quite well be the case that big name legacy businesses will need leaders like Stephen Elop to compete with the new, legalized (non-gray) “mountain bandits”, i.e. Shanzhai, if the bad-mouthing about Elop referred above is indeed true. If this is not true, then a very impressive leader, like Steve Elop is in the above video again, will be needed either.

You will understand this in all details when coming through the sections below:

• Stir in the “old boys” camp: Nokia, Microsoft, Intel, and Apple
• Earthquake like changes in the mobile phone market: numbers from IDC
• Radical strategy shift/reorg at Nokia
• White-box (Shanzhai) vendors
• MediaTek as the catalyst of the white-board ecosystem
• ZTE et al.

(If you don’t like such long readings you can finish with a quite literary type story of how Nokia’s Flirtations Put the Fear of Google Into Microsoft [WSJ, Feb 18, 2011]. The “only” thing you will miss will be the real understanding of the deal.)

Stir in the “old boys” camp: Nokia, Microsoft, Intel, and Apple

Nokia sees Windows phone prices dropping fast [Feb 18, 2011] (emphasis is mine)

Prices of smartphones using Microsoft’s Windows Phone software platform will fall fast, Nokia’s chief executive Stephen Elop said on Friday.

Last week Nokia, the world’s largest phone maker by volume, said it would adopt Microsoft’s software across its smartphones, raising fears the firm would miss out during the transition on surging demand for cheaper smartphone models.

Elop said one of the key topics in the talks on doing a deal with Microsoft was convincing Nokia that it could reach “a very low price point.”

“We have become convinced that we can do that very quickly,” Chief Executive Stephen Elop said in a meeting with Finnish business journalists.

Trying to better compete with Apple’s iPhone, Microsoft has so far had tight hardware requirements for phone models using its software — pushing up handset prices and limiting the potential market.

As part of the push to a wider market and lower prices, Microsoft plans to open its mobile platform to other chipset suppliers beyond Qualcomm.

Nokia’s shares dropped more than 20 percent after it announced the Microsoft deal, but industry executives have said the new alliance will be good for competition and innovation.

Elop said the final agreement between Nokia and Microsoft would be signed in the next few months.

“The conclusion of the agreement will happen, we think, quite quickly, measured in a couple of months, it may be a bit longer, it may be shorter,” he said.

ELOP SELLS MICROSOFT, BUYS NOKIA

Elop, who joined Nokia from Microsoft last September said he sold all his Microsoft shares on February 17 and has bought 150,000 shares in Nokia. The Canadian is the first non-Finn to head the firm.

Shares in Nokia were up 0.7 percent at 6.76 euros by 1038 GMT.

Now it is worth to watch a 7-minute highlights video of Microsoft’s (Steve Ballmer’s) keynote from the Mobile World Congress 2011 to understand the enhanced version of Windows Phone 7 which will be introduced quite probably in fall of this year with the new WP7 Nokia devices:

Stephen Elop has summarized the significance and the benefits of this new strategic partnership as follows (during Steve Ballmer’s keynote at the Mobile World Congress 2011 [Feb 14, 2011]): (emphasis is mine)

It’s truly a pleasure to address you here today at a moment that we think is pretty significant in how we see the evolution of the mobile industry evolve.

You’ve heard me talk about it in a number of forums, that the world is shifting from a battle of devices to a war of ecosystems. And with the announcement that we made jointly with Microsoft just a couple of days ago, it’s very clear the selection we’ve made as it relates to that war.

As you read all of the press and the analyst commentary, of which there’s been a little bit over the last couple of days, it is the case that there’s a common theme emerging that I want to focus on, and that is that Microsoft and Nokia together represent a natural partnership. People are getting it, and they’re getting it for a variety of reasons.

First of all, if you think about the device experience, Nokia brings iconic hardware, incredible industrial design, and we’re matching that up and bringing that together with a leading operating system platform for the future, with an amazing amount of capability that you saw demonstrated here today, and between the two of us we have the understanding of what it means to take it from where it is today, even more broadly down through the pricing continuum so that we have the opportunity to deliver an entire portfolio and range of devices the world over. So, that’s an incredible bit of symmetry and the complementary nature of the relationship, a very powerful element.

A second point of symmetry relates to the area of our global reach, our distribution, the power of our brand, the volumes that we bring, and what we can do to strength the Windows ecosystem, while at the same time getting the support from Microsoft to help us address some of our challenges, which, of course, relates to reentering the U.S. market in a compelling way where Windows Phone has already had a strong start, so there’s an opportunity there.

And, of course, the third point of symmetry relates to the services area that Steve referenced here a few moments ago. We bring mapping, location-based services, the capability to do local advertising, and a variety of other things, together with things like Bing search, Office for productivity, Xbox, and a variety of other things, and thereby form that third ecosystem, because again what our consumers are purchasing today is a combination of all of those things, a single user experience that is a combination of all of those pieces, and together we’ve been able to bring those together to create that third ecosystem.

But if you were to sum it all up, what we’re able to do through this relationship is to ensure that we deliver products that are more competitive, which, of course, is what it’s all about.

Now, it is our belief that this is good news for operators. It’s good news for operators because we’re in a situation where we can actually create that third ecosystem and create an entirely different dynamic than that which was appearing to be forming as it relates to the actions of those other ecosystems, and you understand what I mean in terms of the importance of that balance, because that balance also allows operators to deliver more choice to the ultimate consumer, which is important.

It is also the case that for operators Nokia has had a longstanding relationship with operators all over the world. We understand what it means to be the most friendly partner to operators, we know what we have to do, and this is an area where we will be contributing our strength and our knowledge, our engineering and other assets to allow the Windows Phone ecosystem to be unquestionably the most operator-friendly ecosystem that exists today, because that’s clearly part of it.

We also think this is very good news for developers. It’s good news for developers because we can bring a scale operation, a large number of devices and opportunities to reach customers all over the world through what Nokia will deliver to this partnership through our broad reach and distribution.

Microsoft has a very modern collection of tools to help developers move in that direction. Nokia contributes things like operator billing and other forms of monetization that are not available through any of the other ecosystems. So, we bring those pieces together.

And, of course, finally and most importantly, we think this is great for consumers: iconic hardware, stellar software, combined with unique services, the third ecosystem. We’re thrilled to have this opportunity.

So, there’s been a lot of news, a lot of things going on. Our focus today shifts to delivering those first devices, and changing the industry.

The upcoming new features of the WP7 are not limited to the ones demonstrated by Joe Belfiore in the previous video. Here is another benefit the combined Windows Phone 7, Xbox and Kinect experience [Feb 14, 2011]:

How Microsoft was summarizing the benefits of that strategic partnership? The shortest but still essential presentation of that was given on Microsoft financial analyst briefing at the 2011 Mobile World Congress [Feb 14, 2011] by Andy Lees, President of Microsoft Mobile Communications Business (emphasis is mine):

The other thing that we announced at Mobile World Congress is the partnership with Nokia. Our ecosystem is very important for the success of the phone. Nokia sold about 100 million smart phones over the last 12 months, and they are putting Windows Phone as their primary smart phone platform going forward. They’ll still continue to sell Symbian during a transition period. So, it will carry on in parallel for a while, but nonetheless, it’s a strong commitment to the ecosystem.

And that’s going to have a big acceleration for us. That’s going to have benefits for Microsoft, and actually for the ecosystem – that includes operators, ISVs, developers, and even, in many respects, the other OEMs. When speaking with the other OEMs, they’re excited about the competition in many respects, because it will broaden the overall size of the market, and <it will broaden> the adoption of Windows Phone by users and, therefore, the breadth of the ecosystem that supports it.

It’s a very good arrangement for ourselves, and it’s also good for Nokia. Nokia does a wide variety of things, not just the handset; they innovate in lots of different ways. And they’re going to be able to bring those <innovations> to the Windows Phone ecosystem. For example, the agreement includes mapping. We will adopt Nokia’s core mapping technology, which really is second to none. Bing will be integrated across everything that Nokia does. Their location services will generate advertising revenue for Nokia, not only on their phones, but actually across where those same location services are used on other phones, and even on the PC and other devices.

It’s a multi-faceted agreement, and it includes royalty payments for our software. It includes joint marketing and, as I mentioned, significant revenue opportunities. Considering the size of the smart phone market is growing to being in excess of half a billion phones over the next few years as a run rate, and an install base that will very quickly reach over a billion smart phones, you can see how the opportunity for them not only to sell more devices through the differentiation that they provide and the collaboration that we do to enable that, but also to add-on through these individual services.

…

QUESTION: My question would be related to the Nokia licensing agreement. Do you see Nokia as a more important licensee to Windows Phone 7 than others? And are they going to have any special treatment when it comes to royalty fees? Thank you.

ANDY LEES: So, first of all, it’s a much broader agreement than being a licensee. It includes an element where they are a licensee but, as I described before, it incorporates a wide variety of things like mapping, location-based services, advertising, search, joint marketing, and joint development. Because of the footprint of Nokia, and the overall unit volume that they represent, the multi-faceted element of this agreement is unique.

Having said that, we do continue to support other OEMs. They’re excited about the impact that that’s going to have on the ecosystem. They also have the ability to differentiate and compete. So, yes, the agreement is very unique, because it’s multifaceted and very broad with Nokia, and that’s part of the reason why I think it’s going to be good for them. But also, we know that an important element is to have competition, and Nokia recognizes that, and it’s an important part for them that the ecosystem is healthy.

…

QUESTION: I was wondering if you could help us understand a little bit about the timeframe for the design cycle for a new Windows Phone?

ANDY LEES: It varies a lot by OEM. If you were to start completely from scratch, it takes a while, 18 months. But, you don’t often need to start from scratch. If you’re asking specifically with Nokia, Nokia has lots of components that they can use in order to get a much faster start. So, it depends on how far progressed you already are, and how much is transferable with that.

One of the things that we did in Windows Phone 7 is to design much more of the totality of the core system, which does improve overall quality, and the predictability of the experience, but it has a nice side effect of being a much faster operating system for people to come on stream with. So, that’s an advantage of Windows Phone versus other options.

QUESTION: Nokia said that Microsoft will transfer billions to kind of get this ecosystem going. I’m just wondering what your priorities might be in terms of jumpstarting the initiative, where those billions might be spent, and also if you now have feedback from carriers of what they might be saying about the combination?

ANDY LEES: So, in terms of the agreement, it’s a long-term multi-faceted agreement, as I’ve just said. It includes search revenue transfer, advertising revenue transfer, location-based services revenue transfer, royalty payments for software, and it includes joint marketing. There are lots of facets of the deal. We’re not going into the numbers for each one of those things. Given the size of the total market, there is very substantial opportunity both for Nokia and for ourselves in order to grow units, revenue, and margin. We’re not predicting that, obviously. So, we see it as a good opportunity for us.

And I think Nokia went through a very rigorous evaluation process. Certainly from the conversations we had with them, and being involved in the process in that way, they did an evaluation that included the technology, a strategic evaluation of long-term roadmap and differentiation that they can provide, assets that they have that they can apply, and then, of course, an economic return through our businesses. And they chose this. They could have chosen whatever one, so they must think it’s the best opportunity for them going forward having done that, and I would say it was a very, very rigorous evaluation done over actually a few months. And it was probably one of the most rigorous things I’ve been involved in in that way.

…

QUESTION: Just a quick one on sortre of skins and customization. I just wondered whether Nokia would be able to customize the devices that they offer with Windows Phone 7. And then related to that, whether there was an issue with Qt for Windows 7, or whether it wasn’t a problem, because I think Stephen Elop last night said that Qt wouldn’t be available for Win 7. Thank you.

ANDY LEES: So, the first question is about differentiation. Yes, we’ll enable differentiation. What we don’t want to do, though, is fragment the ecosystem. And fragment it for developers, or indeed for end users. So, we have a collaborative development process with OEMs, and in this case particularly with Nokia, to be able to listen to what it is they want to do and then make a joint decision. And what they know is fragmentation in the ecosystem is ultimately a significant problem. And so they don’t want that. And so having change for the sake of change, which is what does happen in other places, is sometimes a negative thing. So, yes, they can differentiate, yes they can add value, yes, they can enhance in that way. However, we want to make sure that we are consistent.

And then the second question was to do with Qt. Qt is a development part of Symbian. It is not a development part of Windows Phone. We will be helping developers with Nokia, who want to do that transition. But, they will be transitioning from Qt to Windows Phone. They will carry on development of Symbian for a number of ‑‑ quite a period of time. They have a huge install base and developers will want to go through and continue to address that.

So, they’ll continue to enhance and support Qt for quite some time. I think they’ve predicted that they will be selling, even from this day forward, about 150 million copies of Symbian over the next few years. So, it’s not that it’s a dramatic change over – it’s that there will be an evolution and we’ll help developers with that transition.

QUESTION: Can you summarize for us your message to the operators as Stephen Elop put it earlier today, the most operator-friendly ecosystem?

ANDY LEES: Yes, if you look at the choices that operators have in terms of fully fledged ecosystems, the conversations we’ve had with operators is that they have been ecstatic without exception, and I mean so much so that what they have said to us is that this is strategically important for us. They would like to have a balance of ecosystems. They want to bet on having a balance of ecosystems in their network and therefore, they will disproportionately work to help make sure this ecosystem is successful.

One of the things they are finding is that increasingly the other ecosystems appear more and more hostile, with the people that are working on those using it as a way to control revenue flow and to control relationships with customers. [Quite obvious reference to Apple and the way how AppleStore is set up, could be even a reference to Android ecosystem as well.]

That’s not our strategy and our strategy is to be a full-fledged ecosystem. We’re not trying to own the customer in the place of somewhere else, we’re not trying to stop other people from making revenue on the phone. An ecosystem is all about people working together and that means making money together and dealing with customers together. So, that really is our strategy. We are therefore very operator-friendly. So is Nokia. And that really helps us, I think, quite a lot in getting their support.

UPDATE 2-Intel says will find new MeeGo partners [Feb 17, 2011] (emphasis is mine):

Intel Corp (INTC.O) said its partner Nokia dropped the MeeGo operating system [not exactly true, see later] after Microsoft offered “incredible” amounts of money for the phonemaker to switch to Windows but it would find new partners for MeeGo.

Intel’s Chief Executive Paul Otellini said in a meeting with analysts in London, accessed by Reuters via conference call, that Nokia’s (NOK1V.HE) choice of Microsoft (MSFT.O) over Google’s (GOOG.O) Android platform was a financial decision. [ID:nLDE71A0DG]

Otellini said Nokia’s Chief Executive Stephen Elop received “incredible offers — money” from Google and Microsoft to switch.

“I wouldn’t have made the decision he made, I would probably have gone to Android if I were him,” he said. “MeeGo would have been the best strategy but he concluded he couldn’t afford it.“

Microsoft was not immediately available for comment.

Google Chief Executive Eric Schmidt said at the Mobile World Congress in Barcelona on Wednesday that he had held extensive talks to try to woo Nokia. [ID:nLDE71F026]

Otellini said Nokia would find it hard to differentiate using the Windows platform: “It would have been less hard on Android, on MeeGo he could have done it.”

“We will find another partner. The carriers still want a third ecosystem and the carriers want an open ecosystem, and that’s the thing that drives our motivation,” he said.

MeeGo was created last year by the merger of Nokia and Intel’s Linux-based platforms Maemo and Moblin. [ID:nLDE61E0Z2]

Otellini said in Barcelona that open systems had the edge over closed systems: “Some closed models will certainly survive, because you can optimise the experience, but in general, if you harness the ability of all the engineers in the world and the developers in the world, open wins.”

Intel as the new champion of open systems? YES. Nokia’s decision is – however – representing the best interests of Nokia. There is certainly nothing left to Mr. Ottelini as represent his own company’s best interests which he does well, by championing open systems for example. Another proof is just that when President Obama Visited Intel’s Oregon Research and Manufacturing Site, Highlights Education, Jobs and Innovation [Feb 18, 2011] the simultaneous announcement was that Intel to Invest More than $5 Billion to Build New Factory in Arizona [Feb 18, 2011] (emphasis is mine):

The new Arizona factory, designated Fab 42, will be the most advanced, high-volume semiconductor manufacturing facility in the world. Construction of the new fab is expected to begin in the middle of this year and is expected to be completed in 2013.

“The investment positions our manufacturing network for future growth,” said Brian Krzanich, senior vice president and general manager, Manufacturing and Supply Chain. “This fab will begin operations on a process that will allow us to create transistors with a minimum feature size of 14 nanometers. For Intel, manufacturing serves as the underpinning for our business and allows us to provide customers and consumers with leading-edge products in high volume. The unmatched scope and scale of our investments in manufacturing help Intel maintain industry leadership and drives innovation.”

While more than three-fourths of Intel’s sales come from outside of the United States, Intel manufactures three-fourths of its microprocessors in the United States. The addition of this new fab will increase the company’s American manufacturing capability significantly.

Building the new fab on the leading-edge 14-nanometer process enables Intel to manufacture more powerful and efficient computer chips. The nanometer specification refers to the minimum dimensions of transistor technology. A nanometer is one-billionth of a meter or the size one ninety-thousandth the width of an average human hair.

“The products based on these leading-edge chips will give consumers unprecedented levels of performance and power efficiency across a range of computing devices from high-end servers to ultra-sleek portable devices,” said Krzanich.

Fab 42 will be built as a 300mm factory, which refers to the size of the wafers that contain the computer chips. The project will create thousands of construction and permanent manufacturing jobs at Intel’s Arizona site.

Considering that it was just last October as came the news Intel Announces Multi-Billion-Dollar Investment in Next-Generation Manufacturing in U.S. [Oct 19, 2010] (emphasis is mine):

• Intel will spend $6-8 billion in manufacturing to support future technology advancements in Arizona and Oregon.
• The investment supports the creation of 6,000-8,000 construction jobs and 800-1,000 permanent high-tech jobs, and also allows Intel to maintain its current manufacturing employment base at these U.S. sites.
• The investment will fund a new development fab in Oregon, as well as upgrades to four existing fabs to manufacture the next-generation 22-nanometer (nm) process technology.
• Intel’s next-generation, 22nm microprocessors will enable sleeker device designs, higher performance and longer battery life at lower costs.

Intel’s strategy – quite obviously – is to “outmanufacture” everybody else. See also my post: Intel’s industry position and prospects for years ahead [Dec 9, 2010 with updates till Jan 14, 2011]. In a longer term it is definitely the best representation of Intel’s own interests.

Parallel to that they are strengthening their software-related investments as well, see Intel Capital Investments to Help Expand the Mobile Ecosystem [Feb 14, 2011] (emphasis is mine):

MOBILE WORLD CONGRESS, Barcelona, Feb. 14, 2011 – Intel Capital, Intel Corporation’s global investment organization, today announced six new investments to drive continued innovation across the mobile hardware, software and applications ecosystems. The new deals total approximately $26 million and include open source mobile software solutions company Borqs; location-based mapping platform and tools provider CloudMade; QuantumFilm™-based image sensor vendor InVisage; open source online video platform Kaltura; online authentication provider SecureKey Technologies; and unified communications and collaboration service software provider VisionOSS Solutions.

The six companies each have developed innovative technologies to enhance the user experience across a continuum of devices, including handhelds, tablets and laptops, that run a variety of operating systems including MeeGo and Android*.

…

Borqs Ltd. (Borqs) (Beijing) is an Android software integrator for mobile devices. The company works with name-brand smart phone OEMs, semi-conductor companies, and mobile operators to enhance the Android system to meet their requirements. With expertise ranging from kernel, device-level drivers to top-level user interfaces, Borqs Android solution has been deployed in more than 30 Android mobile devices for W-CDMA networks and TD-SCDMA networks. Borqs Android solution is Google CTS compliant. The investment from Intel Capital, subject to the satisfaction of closing conditions, aligns with Intel’s port of choice strategy to support multiple operating systems across a variety of devices and will be used by the company for business development.

CloudMade (Menlo Park, Calif.) was founded in 2007 to enable developers to build location-enabled applications and services. The company provides application developers with a range of innovative tools and application programming interfaces to enable the creation of unique location-based applications across all major web and mobile platforms. Today there are more than 16,000 developers using CloudMade’s tools to create applications for mobile and Web consumers. The investment from Intel Capital will be used to further strengthen the platform and to work with developers to provide them with an unparalleled suite of tools designed for their specific needs. CloudMade will be certified under the Intel’s AppUp™ application store.

Kaltura (New York) provides a widely adopted open source online video platform. More than 100,000 media and entertainment companies, enterprises, small- and medium-size businesses, educational institutions, service providers, platform vendors and system integrators use Kaltura’s flexible platform to enhance their websites, Web services and Web platforms with advanced customized rich-media functionalities that are delivered through any connected device. Kaltura’s features and products enable the easy deployment of custom workflows involving video, photo and audio creation, ingestion, publishing, management, distribution, engagement, monetization and analysis. The investment will be used to enhance rich-media functionalities on tablets, mobile phones and other connected devices, with a special emphasis on supporting the MeeGo™ mobile operating system and Intel’s AppUp application store.

Software-wise Intel’s strategic bet is definitely the open-source as it was already shown in my earlier post Intel’s industry position and prospects for years ahead [Dec 9, 2010 with updates till Jan 14, 2011] by a single presentation excerpt of:

(where Nokia was already missing from the MeeGo design wins !) as well as by the another post of mine Intel Oak Trail to beat ARM with MeeGo specific prices [Nov 25, 2010]. Note that Android is high on Intel’s list as well since MeeGo is a quite new system. See Nokia, Intel release MeeGo 1.1; lacks support for tablets [Oct 29, 2010], For developers’ eyes only: MeeGo version 1.1 [Nokia’s own blog, Oct 28, 2010], MeeGo 1.1 Release [meego.com, Oct 28, 2010], MeeGo v1.1 for Netbooks (Google Chrome Browser) [meego.com], MeeGo v1.1 for Handset [meego.com] and MeeGo v1.1 for In-Vehicle Infotainment (IVI) [meego.com]. Nokia also had different plans for MeeGo from Intel back then platformwise as per Nokia Makes Qt its Sole App Development Framework [Oct 21, 2010], Nokia Focuses on Qt to Extend Reach for Developers, Make Mobile Experience Richer for Users [Oct 21, 2010] and Nokia further refines development strategy to unify environments for Symbian and MeeGo [Oct 21, 2010].

With the latest Nokia decision to select Windows Phone 7 as its primary operating system Nokia’s plans for MeeGo changed only in the sense that Qt has been dropped as the unified environment for developers but as per the Nokia outlines new strategy, introduces new leadership, operational structure [Feb 11, 2011]:

Under the new strategy, MeeGo becomes an open-source, mobile operating system project. MeeGo will place increased emphasis on longer-term market exploration of next-generation devices, platforms and user experiences. Nokia still plans to ship a MeeGo-related product later this year.

which is very painful for Intel as it practically should push MeeGo through the market alone while Nokia can pick the fruits of Intel’s effort practically free of charge when MeeGo becomes a factor on the market. Nokia’s biggest contribution to the MeeGo success will be just the advanced user experience as has been promised before, see my earlier post Nokia to enter design pattern competition for 2011 smartphones with MeeGo [Dec 9, 2010]. But that user experience wil be kept to Nokia, so Intel will not benefit from it elsewhere.

Whether Intel understands the upcoming threat to its business is still not clear from all that above.

Meanwhile Apple definitely needs to take the white-box vendors threat more seriously as indicated by two recent news below:

New York Times: Apple Is Not Making a Smaller iPhone [Feb 18, 2011]

The New York Times has poured cold water on a rumor that Apple is preparing to sell a smaller version of the iPhone.

The report conflicts with stories published earlier this week by Bloomberg and The Wall Street Journal, who both claim that Apple is making a smaller iPhone that relies heavily on cloud-based storage and media streaming.

Citing an anonymous source, NYT explained that Apple is working on methods to bring costs of the iPhone down, and a smaller iPhone wouldn’t necessarily be cheaper to produce, nor would it be easier to operate.

Two major publications say something is happening, and one major publication is saying it’s not. We’re inclined to believe NYT, however, because the explanation seems more rational. Reducing storage and size wouldn’t bring down costs much, and a different screen size would also cause fragmentation in the App Store.

Apples biggest plans to upset faster retail store progress in China [Shanzai.com, Feb 21, 2010]:

We’ve reported before that Apple was lagging on meeting its earlier commitments to open 15 or 25 retail stores in China this year but now it seems an effort to build its biggest store yet will slow things down further.

40,000 people/day apparently tromp through the few Apple retail outlets in China at the moment (I’m never sure but now I think there are 5 locations)… so bigger is probably a much welcome strategy for building an Apple shrine/store.

Since Apple revenue in China last year grew over 4x from the previous year, they’re probably needing to scout new locations that can handle higher retail traffic volumes.

Apple, which had all but neglected the China market for years, has recently stepped up efforts to expand outside the U.S. In its last earnings call, the company’s Chief Operating Officer Tim Cook said revenue from Greater China reached $2.6 billion, four times the company’s China revenue a year earlier.–Source

Apparently Chinese Apple retail store traffic is also 4x larger than American retail traffic so I suppose they’ll also need to find 4x the geniuses to guide consumers through the buy and use process.

Earthquake like changes in the mobile phone market: numbers from IDC

According to CORRECTING and REPLACING Mobile Phone Market Grows 17.9% in Fourth Quarter, According to IDC [Jan 28] the phone market changed significantly in 2010:

Considering the market changes in the 4th quarter 2010 the changes are even more significant:

IDC also released information about the smartphone part of the phone market. See Android Rises, Symbian^3 and Windows Phone 7 Launch as Worldwide Smartphone Shipments Increase 87.2% Year Over Year, According to IDC [Feb 7, 2011]. Here we can see even more troubling signs for four traditional phone vendors in the Top 5. Year-over-Year the situation is as follows:

Here Research in Motion (the Blackberry vendor) is quite visiblibly in a trouble zone as its strong smartphone position is fast declining against such Top 5 challengers as Samsung and HTC. Even Apple should worry since it barely succeeded grow a little faster than the overall smartphone market but the upcoming challengers, Samsung and HTC grew by several times faster, 318.2% and 165.4% accordingly. This observation for all three Top 5 companies in trouble is even more proven by IDC’s 4th quarter 2010 numbers:

Here we can see that Nokia lost 27.5% of its quarterly market share in a year, Research in Motion (RIM) 27.1%, and Apple remained on the same quarterly market share as a year before which means that all the lost marketshare by Nokia and RIM, which is not less than 16% of the overall (10.6% + 5.4% subsequently) went to the other challengers. Samsung’s and HTC’s gains were “just” 10.3% of the overall (6.6% + 4% subsequently) which means that even vendors in the “others” category were able to pick 5.4% out of the Nokia’s and RIM’s 16% combined loss of marketshare. For Apple it is as much of a danger sign as the most obvious things for Nokia and RIM.

IDC’s additional verbatim assesment of the 4th quarter situation (from their press release indicated above, emphasis is mine):

“Android continues to gain by leaps and bounds, helping to drive the smartphone market,” said Ramon Llamas, senior research analyst with IDC’s Mobile Phone Technology and Trends team. “It has become the cornerstone of multiple vendors’ smartphone strategies, and has quickly become a challenger to market leader Symbian. Although Symbian has the backing of market leader Nokia, Android has multiple vendors, including HTC, LG Electronics, Motorola, Samsung and a growing list of companies deploying Android on their devices.”

Adding to the competitive landscape is the entrance of two refreshed operating systems, Symbian^3 and Windows Phone 7 [wrong: WP7 is a completely new system, has nothing related to the previous Windows Mobile line]. “In their first quarter of commercial availability, both Symbian^3 and Windows Phone 7 ramped up quickly, just in time for the holidays,” added Llamas. “By the end of the quarter, Nokia had shipped five million Symbian^3 units while Windows Phone 7 vendors shipped more than 1.5 million units. Now, with the holiday quarter over, both platforms will need to sustain this initial growth in the quarters to come.”

Regarding Nokia IDC was even somewhat positive:

Nokia noted the positive progress of its new Symbian^3 smartphones during 4Q10: five million units combined from the N8, C7, and C601 worldwide, a strong showing given their recent introduction to the market. At the same time, Nokia’s volumes are largely comprised of older devices, while MeeGo-powered devices have yet to arrive on the market. In addition, Nokia continues to struggle in the North America market. The recent cancellation of the X7 smartphone at AT&T highlights Nokia’s challenges and a new device has yet to be revealed.

Regarding Apple and RIM IDC did not see any kind of problems worth to mention. Regarding the overal mobile phone market situation (as given in the first press release linked so far) their observations are (emphasis is mine):

It’s not just smartphone-focused suppliers that capitalized on the mobile phone market’s renewed growth last year. ZTE, a company that sells primarily lower-cost feature phones in emerging markets, moved into the number 4 position worldwide in 4Q10. It is the first quarter the Chinese handset maker finished among IDC’s Top 5 vendors.

“Change-up among the number four and five vendors could be a regular occurrence this year,” added Ramon Llamas, senior research analyst with IDC’s Mobile Devices Technology and Trends team. “Motorola, Research In Motion, and Sony Ericsson, all vendors with a tight focus on the fast-growing smartphone market who had ranked among the top five worldwide vendors during 2010 are well within striking distance to move back into the top five list.”

Regionally they were only indicating that (emphasis is mine):

… Domestic brands in India like G-Five, Micromax, and Karbonn grew with aggressive advertising and branding activities for entry-level phones, while ZTE and Huawei worked closely with carriers to push low-cost Android smartphones in China. …

… In Western Europe, carrier smartphone promotions motivated more users to scrap their feature phones, resulting in strong smartphone sales. … In CEMA, quarterly volumes breached the 70 million unit threshold for the first time, marked by an influx of Chinese and unbranded handsets. Meanwhile, smartphones experienced brisk growth due to falling prices and more Android-powered devices.

The United States … [and] Canada, the focus was on smartphones. Android-powered devices from multiple players, along with incumbent vendors RIM and Apple, pushed shipment volumes to a new record level.

In Latin America, sustained user interest in smartphones drove the market, resulting in strong results for Nokia, RIM, and Samsung as well as relative newcomer Huawei. Smartphones, as well as QWERTY-enabled feature phones, helped boost social networking and messaging, two fast-growing trends in the market. Finally, Alcatel and ZTE once again thrived in the inexpensive entry-level device market.

The numbers as have been indicated by me on the above tables are however exceptionally worrying for Nokia as the leaked internal memo (Engadget, Feb 8) by their new CEO Stephen Elop has described to the employees (emphasis is mine):

In 2008, Apple’s market share in the $300+ price range was 25 percent; by 2010 it escalated to 61 percent. They are enjoying a tremendous growth trajectory with a 78 percent earnings growth year over year in Q4 2010. Apple demonstrated that if designed well, consumers would buy a high-priced phone with a great experience and developers would build applications. They changed the game, and today, Apple owns the high-end range.

And then, there is Android. In about two years, Android created a platform that attracts application developers, service providers and hardware manufacturers. Android came in at the high-end, they are now winning the mid-range, and quickly they are going downstream to phones under €100. Google has become a gravitational force, drawing much of the industry’s innovation to its core.

Let’s not forget about the low-end price range. In 2008, MediaTek supplied complete reference designs for phone chipsets, which enabled manufacturers in the Shenzhen region of China to produce phones at an unbelievable pace. By some accounts, this ecosystem now produces more than one third of the phones sold globally – taking share from us in emerging markets.

While competitors poured flames on our market share, what happened at Nokia? We fell behind, we missed big trends, and we lost time. At that time, we thought we were making the right decisions; but, with the benefit of hindsight, we now find ourselves years behind.

… We thought MeeGo would be a platform for winning high-end smartphones. However, at this rate, by the end of 2011, we might have only one MeeGo product in the market.

At the midrange, we have Symbian. It has proven to be non-competitive in leading markets like North America. Additionally, Symbian is proving to be an increasingly difficult environment in which to develop to meet the continuously expanding consumer requirements, leading to slowness in product development and also creating a disadvantage when we seek to take advantage of new hardware platforms. …

At the lower-end price range, Chinese OEMs are cranking out a device much faster than, as one Nokia employee said only partially in jest, “the time that it takes us to polish a PowerPoint presentation.” They are fast, they are cheap, and they are challenging us.

And the truly perplexing aspect is that we’re not even fighting with the right weapons. We are still too often trying to approach each price range on a device-to-device basis.

The battle of devices has now become a war of ecosystems, where ecosystems include not only the hardware and software of the device, but developers, applications, ecommerce, advertising, search, social applications, location-based services, unified communications and many other things. Our competitors aren’t taking our market share with devices; they are taking our market share with an entire ecosystem. This means we’re going to have to decide how we either build, catalyse or join an ecosystem.

Note that Gartner’s numbers are diufferent, as descibed in Gartner’s 77 million shanzhai mystery [Nov 26, 2010]

Radical strategy shift/reorg at Nokia

As the result of Elop’s assesment on February 11 came the news that Nokia and Microsoft announce plans for a broad strategic partnership to build a new global ecosystem [Feb 11]. The line of thought behind this decision from Nokia’s part was clearly explained a couple of days later on the Mobile World Congress 2011 on the Stephen Elop’s Nokia Press Conference at MWC [Feb 14] as (emphasis is mine):

There were three possible options for Nokia’s future, he explained. It might pursue the internal route and rely on Symbian and MeeGo to see Nokia through to regaining its mobile crown through further and faster development. Second, the company could go to Google and become another licensee of the Android platform. Third, it could become a licensee of Microsoft’s Windows Phone.

Looking at the pace and performance of Symbian and MeeGo over recent years was enough to discount the first choice. Of course, he then talked to Google and Microsoft, the only two realistic external choices.

Both companies were keen. Nokia has a massive global footprint and retains an enormous market share. Nokia was, in Stephen’s words, “suited” by both companies.

So why choose Microsoft over Google? It’s all about how it affects the mobile ecosystem.

If Nokia had gone with Google, it would have been another Android licensee and handed Google massive share. The world of mobile phones would have become a “duopoly” – Google versus Apple.

Going with Microsoft might look counter-intuitive, given the lower market share and youth of that mobile operating system.

However the point, Stephen said, was exactly that. Microsoft has everything to gain by supporting Nokia’s venture in creating devices with its operating system. Windows Phone is a challenger in the mobile space, not one of the current incumbents.

Here’s the way the deal works: Nokia pays Microsoft royalties, it gives Microsoft unprecedented reach, it also gives them access to services such as Maps. Nokia’s hardware expertise creates devices that truly let the Microsoft’s new OS shine.

In return, Nokia gets a substantial reduction in its operating expenses; it gains a range of services to enrich its smartphone offering. There’s a new revenue stream for Nokia in the form of mobile advertising. It gets marketing support with a value of billions of dollars.

The real point is that there’s a co-dependency between Nokia and Microsoft – both partners need the other to fully succeed. That’s part of what makes it the right choice.

The other part of this is about new ecosystems. There are two flourishing apps and services ecosystems currently, Apple’s and Google’s. The combination of Nokia and Microsoft creates a third choice: that’s good news for consumers and good news for the whole of the mobile industry. More choice and more competition drives everything forward.

That means a complete overhaul of Nokia businesses which is best described in the Nokia provides financial targets and forecasts linked to new strategy [Feb 11] as (emphasis is mine):

Due to the initiation of Nokia’s strategic transformation on February 11, 2011, the full-year prospects for its Devices & Services business are subject to significant uncertainties, and therefore Nokia believes it is not appropriate to provide annual targets for 2011 at the present time. …

Nokia expects 2011 and 2012 to be transition years, as the company invests to build the planned winning ecosystem with Microsoft. After the transition, Nokia targets longer-term:
– Devices & Services net sales to grow faster than the market.
– Devices & Services non-IFRS* operating margin to be 10% or more.

During this two years transition there will be the following essential setup as per the Nokia outlines new strategy, introduces new leadership, operational structure [Feb 11]:

With Nokia’s planned move to Windows Phone as its primary smartphone platform, Symbian becomes a franchise platform, leveraging previous investments to harvest additional value. This strategy recognizes the opportunity to retain and transition the installed base of 200 million Symbian owners. Nokia expects to sell approximately 150 million more Symbian devices in the years to come.

Under the new strategy, MeeGo becomes an open-source, mobile operating system project. MeeGo will place increased emphasis on longer-term market exploration of next-generation devices, platforms and user experiences. Nokia still plans to ship a MeeGo-related product later this year.

In feature phones, Nokia unveiled a renewed strategy to leverage its innovation and strength in growth markets to connect the next billion people to their first Internet and application experience.

…

As of April 1, Nokia will have a new company structure, which features two distinct business units: Smart Devices and Mobile Phones. They will focus on Nokia’s key business areas: high-end smartphones and mass-market mobile phones.  Each unit will have profit-and-loss responsibility and end-to-end accountability for the full consumer experience, including product development, product management and product marketing.

Smart Devices will be responsible for building Nokia’s leadership in smartphones and will be led by Jo Harlow [she is a 49 years old American marketing executive who joined Nokia in 2003 as VP of North America Mobile Phones Marketing, then responsible for the same just globally as a SVP, then a few device specific roles like Symbian smartphones and finally appointed to her smartphones releated role in July 2010, before the arrival of Elop]. The following sub-units now in Mobile Solutions will move under Smart Devices:
– Symbian Smartphones
– MeeGo Computers
– Strategic Business Operations

To support the planned new partnership with Microsoft, Smart Devices will be responsible for creating a winning Windows Phone portfolio.

Mobile Phones will drive Nokia’s “web for the next billion” strategy [i.e. the feature phones as mentioned above]. Mobile Phones will leverage its innovation and strength in growth markets to connect the next billion people and bring them affordable access to the Internet and applications. The Mobile Phones unit will be led by Mary McDowell [she is a 46 years old American computer industry executive who joined Nokia in 2004 as an executive VP and GM of Enterprise Solutions, then leading the Corporate Development unit from 2008 until assuming her current role in July 2010, before the arrival of Elop].

…

Services and Developer Experience will be responsible for Nokia’s global services portfolio [i.e. location, messaging, entertainment and context-based services], developer offering, developer relations and integration of partner service offerings. Tero Ojanpera will lead the Services and Developer Experience unit in an acting capacity. [46 years old Tero Ojanpera has been with Nokia along his full carrier which started in research. He is said to be an oustanding radio engineer back then. In 2003-2004, he headed the Nokia Research Center, and was appointed chief strategy officer a year later. From 2006, Tero served as chief technology officer, responsible for corporate and technology strategy, strategic alliances and partnerships, research and intellectual property rights. He has been a member of the Nokia Leadership Team since 2005, and was appointed to his current position in 2009.]

NAVTEQ, an integral part of Nokia’s location and advertising business, will be headed by Larry Kaplan, and continue as a separate reporting entity.

…

Design, responsible for Nokia product and user experience design, will be led by Marko Ahtisaari. [Although not a member of the Leadership Team he is an equally important person on the new operational structure. Marko Ahtisaari re-joined Nokia in September 2009 to head the Design team within the new Solutions Unit and then becoming SVP Design and User Experience. Before he was the CEO and co-founder of Dopplr, the online social atlas for smart travel acquired simultaneously by Nokia. In 2006-2008, he was the Head of Brand & Design at Blyk, the free mobile service for young people. Previously, he worked at Nokia as Director of Design Strategy and held management positions in corporate strategy and venturing since 2002. In 1999-2001, he built and led the mobile practice at digital services company Satama.]

[as noted by ArcticStartup [Sept 29, 2009]: “Last time he stayed almost two years with the Finnish mobile phone giant pulling the Design unit from individual separate pieces into a well functioning shop before leaving in August 2006 to Blyk as a Head of Brand & Design.”]

Note that the above structure essentially means the dissolution of the previous Mobile Solutions unit with dropping the mobile computers focus for the next two years (just retained with MeeGo for longer term) as well as the focus on the “world-class suite of internet services under the Ovi brand” which is now moved into a joint services and developers unit responsibility. The previous structure was as follows:

Structure

July 1, 2010

Our organizational structure is designed to position us for a world where the mobile device, the Internet and the computer are fusing together.

Mobile Solutions is responsible for developing and managing our portfolio of smartphones and mobile computers. The team is also busy developing a world-class suite of internet services under the Ovi brand, with a strong focus on maps and navigation, music, messaging and media. Mobile Phones is responsible for developing and managing our portfolio of affordable mobile phones, as well as a range of services that people can access with them. Markets manages our supply chains, sales channels, brand and marketing activities, and is responsible for delivering our mobile solutions and mobile phones to the market.

Nokia Siemens Networks, jointly owned by Nokia and Siemens, provides wireless and fixed network infrastructure, communications and networks service platforms, as well as professional services to operators and service providers.

NAVTEQ is a leading provider of comprehensive digital map data and related location-based content and services for automotive navigation systems, mobile navigation devices, Internet-based mapping applications, and government and business solutions.

White-box (Shanzhai) vendors

While Nokia and Microsoft are talking about the need to have a third smartphone ecosystem (in addition to Apple’s and Google/Android’s) the fact is that within the Google/Android camp there is an absolutely threatening ecosystem in itself which is generally called the China-based white-box vendors. The Special Report: China’s white-box handset market (Jul 26) from Digitimes Research (Taiwan) describing this as follows (emphasis is mine):

In China, there is a specific form of business operation that has come to be called the white-box industry mostly targeting the vast low-income segment of the market. The white-box supply chain is a production system centered in southern China, with product designs relying on core component suppliers and with a supply chain working on a division of labor, high flexibility and a minimal amount of assets.

In more details this kind of model is described in Digitimes Research analyzes China white-box handset market in new report [Aug 10] (emphasis is mine):

While the mainstream business model for manufacturing and distributing mobile handsets remains leveraging the OBM/ODM/OEM/EMS model, a whole new paradigm has developed within China’s domestic market, according to a new report from Digitimes Research.

The local China-based industry called “Shanzhai,” but translated as “white box,” is based on small-scale or underground factories whose products are seldom sold through regular sales channels, but the scale of the market now rivals that of global top-10 brands or major Chinese brands in the domestic China market, Digitimes Research pointed out. The “white-box” industry currently accounts for more than 100 million handset shipments, and some players in the market, such as K-Touch (Beijing Tianyu Communication Equipment) and Gionee have made the leap to become recognized brands.

While accounting for about one-third of domestic handset shipments, the white-box industry in China has been working under the acquiescence, and even active encouragement in some cases, of the government and is proclaimed by its proponents as representing the success of China’s homegrown innovation and enterprise. The Digitimes Research special report examines the difference between the traditional ODM supply chain and the virtual organization used by white-box players, and highlights the advantages of the white-box business model.

Link: China’s white-box handset market

Next we should clearly understand What drove the shanzhai success? [Shanzai.com, Nov 13, 2009]:

Shanzhai players have gained a strong foothold in the local market in the last two years [i.e. in 2008 and 2009]. Although they started off with copied brands, nearly one third of them are now [i.e. Nov’09] becoming more and more innovative in their products.

… Five years back, none of us had even heard of shanzhai. Copy or fake products existed only in the grey market.

… why are we instantly attracted to shanzhai products?

Price is surely one major factor. While you get a shanzhaid version of an Apple iPhone in China for around USD 70, the real iPhone will cost you 5 to 7 times more. The shanzhai have given a new ray of hope to the lower middle classes to flaunt the features of branded phones.

… While established brands are cautious about trying something new, the shanzhai design their products according to customer demand. Netbooks with CD drives and dual SIM phones with TV streaming are common examples of shanzhai designing customized products for identified consumers.

… The shanzhai option is also often the first way of getting a new product … er well, a version of a new model anyway, something Kiran [from shanzai.com] pointed out, “Since they are acutely aware of the need to cater to local needs, they have the inherent capability to produce a slew of new devices with the latest technology every one to two months. This innovative, flexible and cheap market strategy poses a huge challenge to legal branded manufacturers. For the branded manufactures, the gestation period of a new product is much longer than the shanzhai counterparts. If a new product is designed it takes approximately 6 months to release into the market as it passes through different safety and regulatory measures. By the time it enters the market, it is already out of date due to the early availability of its clone products devised by the shanzhai bandits.”

The shanzhai are also rebelling against established brands by promoting open source platforms, which cost less and offer similar features of other platforms. … The actual manufacturing cost of a phone is only 20% of the retail price of a phone; the rest is spent in designing, marketing, tax, regulatory checks, safety tests and post sales services. Shanzhai products save the funds spent in TV advertising and other marketing activities.

While price, specs and rebellion against established brands has contributed to the success of the shanzhai business model, another major factor responsible for the sudden boom of the shanzhai is the economic downturn of 2007-09. Although the impact of the financial crisis is less evident in countries like China and India, it has paralyzed foreign investments to a large extent. The recession has actually affected the spending power of people, so a person thinks twice even before making a small investment like buying a new phone. So when offered similar features at a much lower price, many people go for the cheaper option where they once might have stuck loyally with a big brand.

…

Shanzhai distribution channels work quite effectively and actually quite speedily too. In Shenzhen, a small group of workers have their own factories with R&D, software development and hardware manufacturing facilities. Go to any shop in Shenzhen in the morning and tell them the features you want in your mobile phone and collect your phone in the evening! Shanzhai prefers its marketing through its local channels; Chinese people also prefer their local brands over international products. If we take a look at tech building companies in countries like India and Brazil, the shanzhai lead there too. They export the hardware parts to save export duties, and then the completed products can be assembled easily in these countries.

[Another factor – in fact a major “catalyst type” force – is mentioned in the article as “the emergence of local silicon players like MediaTek” which – quite naturally – will be discussed in the next section separately: see MediaTek as the catalyst of the white-board ecosystem below.]

The attached diagramm (to the first news item above) of mainland China’s home market growth is clearly showing that there is essentially no forecasted growth for 2011 so there is no other way for the white-box vendors as enter the international market even more aggressively than before. Digitimes even reported that White-box handset makers gearing up smartphone and 3G handset production, MediaTek to benefit [Dec 3, 2010] also indicating the Chineses government increased support for that (emphasis is mine):

White-box handset makers in China are gearing up their production of in-house designed smartphones and 3G handsets, a trend which will benefit Taiwan-based IC design house MediaTek. China’s white-box handset industry in 2010, has begun to place more emphasis on upgrading specifications and added value to enter the high-end segment, and has allocated more resources on development of intellectual property.

Even the China government has voiced its support for the white-box industry. Yang Xueshan, Deputy Minister of the Ministry of Industry and Information Technology (MIIT), recently said that the government will support the white-box business model as long as there is no infringement of IP.

Yang pointed out that from imitation to innovation is a process white-box handset makers have to go through, citing China-based telecom equipment maker Huawei Technologies as a success story. Huawei’s foray into the handset sector began with low-cost products and the company now has research and development capability, he said.

Supporting the white-box business model, given that no patents are infringed, is a good way to protect intellectual property rights as well as provide the most cost-effective products to consumers, Yang added.

Two months later came out the news that Shipments of sub-US$150 Android handsets to reach 20-25 million units in 2011, says Digitimes Research [Jan 28] (emphasis is mine):

Shipments of entry-level Android handsets with a price tag of below US$150 are likely to reach 20-25 million units in 2011 which could affect Nokia’s performance, according to an estimate by Digitimes Research.

Shipments of sub-US$150 Android phones totaled only 2.5-3 million units in 2010, mostly shipped by China-based Huawei Technologies and ZTE. However, the number of sub-US$150 Android phones is likely to increase by 8-10 fold in 2011 resulting a substantial increase in shipments, Digitimes Research said.

Google’s efforts to push Android phones to emerging markets, strong demand from markets in China, India, South America, Southeast Asia, Africa, and Russia, and a shift of telecom carriers in mature markets from feature phones to smartphones all work to stir up shipments of Android phones.

In addition to Huawei, ZTE, white-box handset makers in China and Taiwan-based ODMs, Samsung Electronics, LG Electronics and Motorola are also likely to step up their presence in the entry-level Android segment, Digitimes Research said.

The increasing popularity of low-cost Android phones is expected to have a major impact on Symbian-based smartphones as Nokia is projecting merely a 10% sales growth rate for its smartphones, far below the 50% growth projected for the segment, Digitimes Research noted.

Two weeks later even more threating news were coming stating that China-based white-box vendors to offer below US$100 Android smartphones for emerging markets [Feb 9] (emphasis is mine):

China-based vendors are poised to offer Android smartphones priced at below US$100 for sale in China and other emerging markets including India, Indonesia and Brazil [so called BRIC] in 2011, according to Taiwan-based handset and component makers.

Such low-price Android smartphones are equipped with basic functions including dual-mode or dual-SIM, Bluetooth, Wi-Fi, FM radio, trackball and G-sensors, with other functions such as mobile TV and GPS available for additional choice, the sources noted.

The low price is based on non-customized turnkey solutions featuring the integration of chips, operating systems, software and user interfaces, the sources pointed out. Taiwan-based IC design houses MediaTek and Infomax Communication have offered such solutions at less than US$100 and US$80-90 respectively, while China-based Leadcore Technology and Fuzhou Rockchip Electronics have done so at US$80-105 and US$90-105 respectively, the sources indicated. Qualcomm, ST-Ericsson and Broadcom have also offered such solutions, but mostly for 3G and priced higher at US$100-120, the sources noted.

In an additional news it was indicated that FOB price of turnkey solutions for Android smartphones now under US$120, says Digitimes Research [Feb 9] (emphasis is mine):

FOB prices of turnkey chip solutions for Android-based smartphones are now under US$120, according to Digitimes Research.

Taiwan-based MediaTek and Infomax Communications are offering Android chip solutions at below US$100 and around US$80-90, respectively. China’s Leadcore Technology and Rockchip Electronics are quoting at US$80-90 and US$80-105, respectively. Even international players such as Qualcomm, ST-Ericsson and Broadcom have joined in the battle with solutions priced between US$100-120.

International chip providers are outsourcing their solution designs to handset designers and manufacturers. Qualcomm is working with Gsmart [Taiwan] and Thundersoft, [HQ in Beijing, branch in Tokyo, support centre in Seoul and Taipei], Marvell has partnered with Zoom Technologies [HQ in Beijing, mainly EMS for OEMs + ODM + own brand sales via Hong Kong, ownership via Delaware-BVI chain of holdings], Broadcom with Yuhua [rather Yuhua TelTech, an ODM in Shanghai, with ~$40M international ODM sales] and ST-Ericsson with Beijing Xuntong Antian (transliterated).

More background information:
– Cheap chips off the old block [China Daily, Oct 31, 2008]
– Decoding Shan Zhai Ji (Bandit cell phone) – the opposite side of brand chasing [Nov 17, 2008]
– The phenomenon of Shan Zhai products and culture [Noc 19, 2008]
– ‘Shanzhai’: Faking it for money or fun? [China Daily, Dec 9, 2008]
– MIIT: GSM Association Issues IMEI Numbers To Chinese Mobile Phones [Dec 25, 2008]
– Copycat “Shanzhai” culture takes on life of its own [Xinhua, Dec 30, 2008]
– Chinese Mobile Phones Lacking IMEI Numbers Face Death In India [April 7, 2009]
– Mountain village handsets storm market [China Economic Net, July 19, 2009]
– Experience the shanzhai market: video [Oct 6, 2009]

– China’s ‘Bandit’ Cell Phones – The High-Tech Golden Egg with ‘Taiwan Inside’ [Oct 6, 2009]
– India Starts To Block Chinese-made “Shanzai” Mobile Phones Without IMEI [Dec 3, 2009]
– Chinese Shanzhai Mobile Manufacturers Will Move Production To India [Feb 23, 2010]
– Egypt Will Ban Chinese Shanzai Mobile Phones [June 28, 2010]
– Shanzhai grew by 43.6% in 2010, production cycle also cut by 25% [Shanzai.com, Feb 3, 2011]

MediaTek as the catalyst of the white-board ecosystem

Update: MediaTek to Launch Ultra Cheap Handset Chip Against Spreadtrum Communications [March 21. 2011.] (emphasis is mine)

MedaiTek Inc. has recently announced plans to introduce an ultra low cost multimedia system-on-chip for mobile handsets in a bid to rival a competing solution Spreadtrum Communications Inc. of mainland China will roll out in April.

According to MediaTek, the upcoming handset solution, codenamed as MT6252, supports serial flash memory and is cost efficient for handset makers as it uses lesser passive devices and smaller printed circuit board than existing solutions. Also, the MediaTek solution supports four-SIM, four-standby mobile phones, convincing the mainland`s home-grown handset makers including Gionee Communications Equipment, Ragentek Communication Technology Co., Ltd. and Leatek Technologies International Co., Ltd. to support it.

MT6252 is also designed to replace MediaTek MT6251, a provisional low cost solution to 2.5G mobile phone. Industry executives pointed out that the SOC-based MT6252 is crucial to whether or not MediaTek can dominate the mainland`s market for 2G chips.

The mainland`s market for low-end handset chips had been controlled by Infineon Technologies AG of Germany with its ULC2/3 solutions until the end of last year, when Intel phased out of the low-end business after acquiring Infineon`s handset chip asset.

The low-priced solution Spreadtrum will launch in April is named SC6610, which incorporates embedded SRAM into it.

Here it is worth to start with a historical detour of Shanzhai.  Quoting from MediaTek rides high in bandit territory [May 16, 2010] article (emphasis is mine):

MediaTek, which originally focused on making chips for DVD players [see: MediaTek Announces the MT1389S-DVD-Player single chip. To enable the best digital media experience [March 26, 2007]], switched to designing mobile-phone chips after recognizing that cheap locally made phones from China’s Ningbo Bird and DBTel of Taiwan could not match the functionality of Nokia and Motorola, which 10 years ago dominated the China mobile handset market.

MediaTek’s response was to create “complete solutions” for mobile phones – the so-called “system-on-a chip”. It integrated the handset’s motherboard with other major components and the software for practically any desired feature onto a single circuit board. Most important, the products were extremely cheap. According to industry insiders, a set of such systems sells for as little as 100 yuan (US$12.50) to 200 yuan.

Practically all that is then required to produce a mobile handset is the addition of a battery and a casing to hold MediaTek’s “semi-product”. The combination of innovative Taiwan technology and mainland China’s low-cost mass manufacturing makes such handsets available at less than a third of the price of branded rivals.

“MediaTek revolutionized how cell-phone handsets are made in China,” said Zhang, formerly a general manager of Motorola’s Mobile Software Solutions Group for Asia-Pacific and now president of Yostar.net. “It makes it possible for toy factories to manufacture mobile phones.”

Many of these phones are imitations of major branded products, with similar (or the exact) functionality and style. But a lot of innovative handsets are also produced – mobile phones with seven speakers, for students to reproduce dance floor or boom-box music environments; handsets with four bright LED lights to serve as a cell phone and a powerful flashlight. For senior citizens, devices have big displays, big keys and a loud sound. For people who work outside in the fields, there are handsets with longer battery life. There are handsets with two sim-card slots for people traveling between different cities – allowing use of, for example, both a Hong Kong number and a Beijing number. Some are even equipped with a reader to check whether cash is counterfeit. Others look like a pack of cigarettes, or have a built-in laser pointer, a global positioning system, or a TV signal receiver.

The adaptability of small manufacturers also means that whatever is the latest trend – a new iPhone design, for example – can be almost immediately matched by a bandit version.

Then what happened is that after purchasing Analog Devices’ cellular radio and baseband shipset operations [Sept 10, 2007], completed next January [Jan 11, 2008], and the company report that its approach to providing a total solution for customers resulted in a total shipment of mobile solution chipsets over 150 million in volume in 2007 [June 8, 2008] followed an even more effective step of introducing its first multimedia-rich GSM/GPRS single-chip [Feb 12, 2009] (emphasis is mine):

MediaTek, Inc., the leading fabless semiconductors company for wireless communications and digital multimedia solutions, today announced that its first GSM/GPRS single chip, the MT6253, has been adopted in mobile phones on the GSM/GPRS network. Integrating all essential electronic components, including DBB, ABB, power management unit and RF transceiver onto a single chip, the MT6253 can further reduce the materials costs of a complete mobile phone. Equipped with strong peripheral supports including camera, high speed USB and Class D audio AMP, MediaTek’s MT6253 is the most highly integrated chip in the market for mobile communication.

“Bringing together advanced multimedia technology, efficient manufacturing, system-level design tools and real-time support, MediaTek’s MT6253 sets a new standard for cellular SoCs ”, said JiChang Hsu, Executive Vice President of MediaTek. “To better address the needs of emerging market, where handset manufacturers care cost-performance ratio more than ultra low cost, MT6253 provides perceptual peripheral support to bring down costs and reduce space requirements greatly.”

In addition to MT6253, MediaTek also brings its multimedia expertise to its smart phone solutions. Supporting LCD resolution up to WVGA, MediaTek’s first smart phone solution – MT6516 is the first solution for smart phones in the market which is able to process MPEG-2 transport stream decoding without any co-processor. MediaTek’s MT6516 features multiple video codec to enable MDTV applications, including DVB-T, CMMB and DVB-H, all of which can be easily implemented without multimedia co-processor.

This was followed by the advanced single-chip all-in-one GPS solution, MT3329 [May 25, 2009], by three second generation IEEE 802.16e WiMAX chips, the MT7110 Series [June 1, 2009] which was found by an external benchmark to outperform its peer products [July 28, 2010] and thus laying a foundation towards IMT-Advanced (4G) via the WirelessMAN-Advanced route (see my earlier post: IMT-Advanced (4G) for the next-generations of interactive mobile services, China is triumphant [Oct 24, 2010]), as well as both types of LTE Advanced. It is said to be possible to base all these advanced protocols on the same chipset construction. Thus MediaTek has already all the foundations to continue its leadership as the Mobile Internet is going to be faster and faster every year, as well as well more and more accessible to everybody in this decade.

Then came the news that MediaTek to Obtain WCDMA License from Qualcomm [Oct 15, 2009] (emphasis is mine):

Taiwanese wireless semiconductor manufacturer MediaTek has announced that it will soon receive a license to produce Qualcomm’s WCDMA chipset.

Once the license agreement is finalized, MediaTek’s first WCDMA 3G chipset, the MT6268, is aiming for release late this year, with hopes of becoming a major earner for the Taiwanese manufacturer next year. Qualcomm will receive a 6% licensing fee on every 3G chipset produced by MediaTek [the arrangement obtained later was different, see below].

MediaTek says that its license agreement discussion with Qualcomm has entered its final stages. The broad framework and provisions are already agreed upon by both sides, with only minor technical issues still under discussion.

Because Qualcomm still holds the patent on WCDMA technology, any manufacturer that has a product involving WCDMA technology or wishes to produce WCDMA chips must first obtain a license from Qualcomm.

Although MediaTek has yet to officially obtain a license from Qualcomm, its MT6268 3G chipset has already entered small-scale test production by Taiwan Semiconductor Manufacturing Company (TSMC). The test production, which mainly utilizes a 65nm manufacturing process, has so far met with success, and full production can begin immediately upon receipt of the license agreement.

The agreement has been reached as per MediaTek and Qualcomm Enter Into Patent Arrangement [Nov 20, 2009]:

MediaTek’s customers do not receive rights to any of Qualcomm’s patents and such customers will need to obtain a separate license from Qualcomm in order to receive rights to any of Qualcomm’s patents. Qualcomm’s customers do not receive rights to any of MediaTek’s patents and such customers will need to obtain a separate license from MediaTek in order to receive rights to any of MediaTek\’s patents. The remainder of the terms of the arrangement are confidential.

This allowed MediaTek reaching out to 3G market with Multimedia Phone Solution MT6268 [Dec 10, 2010] as far as in India:

Grant Kuo, MD, MediaTek [India] said, “With MT6268 multimedia solution, MediaTek has started reaching out to 3G market. The 3G strategic layout of MediaTek will be significant for the industrialization and the future moment of the 3G market in India.”

With high level of integration, MT6268 which supports 3G is targeted for the feature-rich multimedia market. MT6268 offers key features such as support for Video Calling, 5Mpixel camera, High GPRS speed, integrated BT, Dual SIM and full html browser. In addition to it, MT6268 is intended to address the need of embedded devices for low power with its patented power saving technology. These chipset solutions are intended to revolutionalize the market and take the industry to the next level of mass market adoption.

On this year’s Mobile World Congress – quite naturally – MediaTek announced the MT6573 platform for mainstream 3G smartphones [Feb 11] (emphasis is mine):

The MT6573 platform incorporates a highly-integrated, core chipset, a full range of connectivity solutions and supports the latest versions of the popular Android^TM operating system. The MT6573 platform supports a quad-band [i.e.: all 4 GSM bands, the 850 and 1900 MHz bands – used in Americas – and 900/1800, used elsewhere], 3G/HSPA modem with mobile broadband rates of 7.2Mbps in the downlink and 5.76 Mbps uplink, as well as quad-band EDGE. The integrated applications processing system combines a 650 MHz dedicated ARM®11subsystem for the Android operating system; support for advanced 3D graphics; multi-format video capture and playback up to FWVGA 30fps; high-resolution camera support to 8MP and a high-end FWVGA, touch-screen display. The platform chipset is completed with a full range of connectivity solutions for Bluetooth, WiFi, GPS, FM radio and Mobile TV from MediaTek.

The core chipset of the MT6573 integrates the modem, applications, multimedia subsystem and all necessary power management functions into a single SOC. Combined with a single-chip, multi-mode, multi-band transceiver, it enables extremely small footprints that allow for smaller, more innovative industrial designs and form-factors. Additionally, the integrated 3D graphics capability brings gaming and user interface capabilities that were previously available only to high-end smartphones. Finally, the platform provides advanced camera and multimedia features that include smile and face detection, panorama and burst shot, as well as high-resolution video capture and playback. The platform can be delivered as a full system solution consisting of hardware reference design and fully-tested, compliant software suite that can improve design efficiency and speed time to market for customers in the rapidly changing smartphone market.

… The MT6573 platform is currently sampling to lead customers and will be in mass-production by mid 2011.

Back to the MediaTek rides high in bandit territory [May 16, 2010] article (emphasis is mine):

Big-name Chinese phone-makers such as TCL, Lenovo and Konka are now using MediaTek chips for their products, followed more recently by foreign brands like Motorola and Sharp for their low-end products.

“The local Chinese phone-makers made huge losses in 2005-06 due to the rise of shanzhai ji,” said Knock of JPMorgan, to the extent that the top 20 local Chinese brands have used MediaTek chips for their phones. “The mobile phone companies have outsourced their R&D [research and development] to MediaTek and now focus on marketing and manufacturing only.”

In 2008-09, US giant Motorola restructured its global operation, significantly cutting back its R&D department. “That is when Motorola started to use MediaTek chips,” said Knock, “In this way, Motorola only needs to keep a research team for cutting-edge technology, leaving MediaTek to work on the more mature or mainstream technology research.”

MediaTek has now captured about 30-40% of the branded handset market in China, estimates Knock. Moreover, demand for affordable phones in places such as India and Latin America has made it one of the top five global suppliers of all handset chips. Last year, only about half of the 360 million phone mobile chips made by MediaTek were shipped to China, with the remainder going to the rest of the world.

Now MediaTek Aims to become the Best Mobile Chipset Partner of Indian Mobile Manufacturers [Jan 27] according to MediaTek India (emphasis is mine):

“We do believe that our latest single chipset solution- MT6253, and a customized Android platform for the India market that features many extremely popular applications will help sustain our leadership in the Indian market and the introduction of some of our new 3G solutions will help penetrate new segments”, says Mr. Grant Kuo, MD MediaTek India.

According to a recent Gartner survey, major handset manufacturers view India as a very attractive investment because it is projected to have the most rapid growth of mobile users worldwide: 660 million mobile users in India by end of 2010. This number is expected to cross the one billion mark by 2014 according to global consultancy firm PwC. Rural India is expected to drive this growth in mobile adoption including 3G handsets. PwC also predicts the 3G subscriber base to grow to around 107 million by 2015 out of which 24% will be rural subscribers.

At the forefront of this growth in rural India will be low cost mobile handsets. According to the Voice&Data100 Indian Telecom Survey, low cost Indian brands like Micromax, Spice and Karbonn strengthened their presence in the market in 2009-10, at the cost of well established MNC’s.

“India is a high potential market for our company. The consumers in semi urban and rural areas, who have been the traditional users of low cost handsets, now demand high end features at affordable rates. MediaTek has a proven track record worldwide and aims to leverage this to become the preferred chipset provider to indigenous Indian handset makers, thereby bringing high end applications within the reach of the Indian masses. We are planning to step up our marketing initiatives in India to create awareness about our products and enhance our brand value in the Indian market”, adds Mr. Arun Gupta, Business Development Director MediaTek India.

MediaTek’s technology and product innovation has also received a lot of recognition and awards from media and institutions around the world. In 2010, MediaTek is ranked top 10 among Asia’s 200 most-admired companies by “The Wall Street Journal” and ranked No. 12 among Global Top 100 High-Tech Companies by “Bloomberg Business Week. In addition, its highly integrated mobile single chip MT6253 has been honored with the EDN innovation award. In 2010 MediaTek also had five publications in the distinguished International Solid State Circuits Conference – highest record in the Taiwan semiconductor industry. MediaTek is also honored with the “Excellence in Corporate Social Responsibility Top 50” award every year since 2007 by Taiwan’s most prestigious Common Wealth Magazine.

And for this local manufacturers penetration strategy MediaTek has all the prerequisites via the earlier Shanzhai’s route.

Meanwhile International handset vendors align with Taiwan and China makers to take on local competition in emerging markets [June 24, 2010] (emphasis is mine) and by doing this they are essentially following Motorola’s route:

International handset brand vendors will likely step up cooperation with manufacturers in Taiwan and China to compete more effectively with local vendors in emerging markets that are sourcing white-box models and selling under their own brands.

India’s Micromax, Indonesia’s Nexian and i-Mobile of Thailand are some of the domestic brand vendors that have taken down global giants at home with current market share rankings at third, second and fourth, respectively, in their countries.

Their business models are sourcing handsets from white-box manufacturers to target the entry-level segment as well as niche opportunities that were neglected by larger international vendors, according to sources from Taiwan-based handset makers.

The low-end strategy is certainly effective since consumers in emerging regions are typically more price sensitive. For niche markets, Micromax introduced phones with long standby time of 30 days and models with dual-card, dual-band and dual-standby functionalities. Nexian heavily promoted devices with dual-card and dual-standby features and QWERTY keypads. i-Mobile launched dual-card and dual-standby phones and models with analog-TV features.

Besides entry-level products, local vendors have rolled out smartphones and begun to expand to markets overseas, the sources said.

Most of the local vendors are also well-known distributors with strong ties within domestic sales channels and are responsible for their own after-sale services, the sources pointed out. This solves two major issues white-box critics often bring up – low brand recognition and poor service. Combined with protectionism policies and consumer preferences for home-made brands, the local players still have plenty of room for growth.

Recently, several brand vendors ranked in the top-five globally have contacted manufacturers in Taiwan and China-based handset designers to outsource new models that are comparable in both features and price to those sold by local vendors, said the sources.

Taiwan handset manufacturers have previously produced for local players in emerging markets but gradually gave up orders to white-box makers, since those clients never provided long-term order commitment and often shopped around between seven to eight contract manufactures, the sources noted.

And just now came the news that MediaTek reportedly to secure new orders from Nokia and Samsung for 2011 [Feb 17] (emphasis is mine):

IC design house MediaTek will likely attract new orders for entry-level and mid-range handsets from Nokia and Samsung Electronics in 2011, in addition to its existing ones from Motorola and LG Electronics (LGE), according to market sources.

New contracts, as well as continued-strong demand from China’s white-box handset market, may assist MediaTek to fulfill its handset-chip shipment goal of 550 million units for 2011, the sources said.

Having grown its market share in China’s white-box handset market with 2.5G solutions, MediaTek finds it hard to gain a further larger presence in the white-box handset market. As a newcomer to the 3G and smartphone chip segment, MediaTek is facing strong competition from international chipset companies. Meanwhile, price cuts initiated by local China-based rivals have squeezed its 2.5G market share.

MediaTek now stands a chance of breaking into the supply chains of more brand-name handset companies in 2011, the sources pointed out. MediaTek is likely to grab orders mainly for entry-level and mid-range devices from four out of the global top-five handset vendors, the sources indicated. The orders could boost MediaTek’s handset-IC shipments to 600 million units in 2011, the sources said.

In addition, the sources pointed out that MediaTek is preparing the launch of its next-generation 2.5G single-chip solution, which will be built using 40nm process technology with more features integrated in the compact all-in-one package.

Note that in 4Q10 at least one mainland China rival started to use heavily MediaTek’s major foundry – albeit at 65nm not the 40nm MediaTek is aiming for – as reported by TSMC to get 60% more orders from Spreadtrum in 4Q10 [Oct 15, 2010]. In fact MediaTek had two make two pricecuts in the second half of 2010 and smartphone chipsets MT6516 and MT6268 now down to under US$10 [Dec 3, 2010] (that price is without the WCDMA license which should be additionally paid to Qualcomm, see above). There is more information about that came in MediaTek to take on MStar with 40nm single-chip 2.5G solutions [Feb 17]:

MediaTek will take on rival MStar Semiconductor in the 2.5G handset chipset segment with single-chip solutions built using 40nm process technology soon, according to industry sources.

MediaTek aims to take back the service privilege in the 2.5G chipset sector with advanced manufacturing processes after MStar managed to boost its share in the segment in the China market from the original 5-10% to almost 30% in the second half of 2010, the sources noted.

MediaTek’s next-generation 40nm parts will integrate baseband, RF, Bluetooth, power amplifier and power management ICs into an all-in-one package, said the sources. In comparison, MStar’s 40nm chips, which are still in development, will come with only baseband and RF chips.

Having cut its chip prices drastically in the past few months to stop MStar from further denting its share in the 2.5G segment, MediaTek’s strategy to launch parts made with advanced technology will also force MStar to channel its newly earned profits into a technology race, the sources asserted.

Note: MStar is a Taiwan-based competitor of MediaTek as per MediaTek to see challenges in China market [Sept 9, 2009]

In this way the white-board ecosystem will expand not only outside mainlad China but also to the international brand vendors, and MediaTek will likely remain the major catalyst of that peculiar ecosystem for the years to come.

ZTE et al.

@ MWC: ZTE Goes For The High End With The Skate [Feb 14, 2011]:

ZTE, the Chinese handset and wireless equipment maker, epitomises a certain kind of new entrant in the mobile industry: very determined, very cheap, and very much on the rise. At an overheated stand crowded with competitors, partners and non-partisan observers checking out ZTE’s newest devices — led by the Skate Android-based smartphone—I retreated to a quiet, air-conditioned room with Zhang Xiaohong, ZTE’s VP for handsets, to talk cannibalization, me-too Android competitors and more.

North America is our fastest-growing market. ZTE’s home market of China, where it ships devices with the three major operators China Unicom, China Mobile and China Telecom, is the company’s single largest market. But North America, shays Zhang is growing the fastest. Shipments in that region went up four-fold in the last year, with ZTE signing distribution deals with the U.S.‘s four major operators (selling both handsets and data cards for mobile broadband). Europe also grew—by a rate of 100 percent, with notable increases also in Japan, Australia, Russia and Latin America.

ZTE has already made a crucial shift in the last year to exporting more devices than it sells domestically. Zhang says the current rate is 35:65. If you take IDC’s recent number that indicates that ZTE shipped 60 million units in 2010, that works out to 21 million in China and another 39 million everywhere else.

Is it all about the cheapest price? No, she says. ZTE has disrupted the market with devices like the Blade (which sold for under $200), but it looks like it is now trying to leverage that market share to expand into the more premium segment against higher-end competitors like HTC and Apple:

“We will continue to focus on low-cost solutions for developing and developed markets, especially developing markets” she says. “But it’s also about new devices like the Skate.” No prices have yet been revealed for the Skate, which features a 4.3-inch screen and runs using Android 2.3—but the device, when I tried it out, seemed a little slow and jerky in its graphics. The specs say it runs on a 800MHz processor, compared to some of the newer devices from other Android OEMs built on 1GHz chips. The device is set to debut in May 2011.

Who is your biggest competitor? No straight answer on this one. Zhang says ZTE splits their competitors into two segments: “established” companies like Nokia (NYSE: NOK) and Samsung and “new ones” like HTC and Apple (NSDQ: AAPL). “ZTE can produce devices that compete with both,” she says.

What makes you different from other Android device makers? Ultimately a lot of these devices start looking more or less the same as each other, I say.

“We are good at customisation, according to different cultures and customs. We can differentiate.” ZTE says that it can and has developed devices for specific operators, making them unique in the marketplace. It also looks like ZTE is looking to take customisation to the software level, too: the company launched a new app store this week, to deliver services that complement those in the Android Market.

One other key area, says Zhang, is that, unlike a lot of the other Android OEMs, ZTE also sells network equipment: this means that ZTE can sell “total solutions”—at very competitive prices. She says that ZTE has such agreements with 28 of the top 30 operators worldwide.

What do you think of the Nokia/Microsoft (NSDQ: MSFT) deal, and do you have any plans for MeeGo? For now, Nokia’s choice to work on Windows Mobile phones “means the future does not look good for MeeGo,” she says. “Last week’s news may have been the last straw or it, and we have no plans to develop on it for now. But whether going with Microsoft will give Nokia advantages over the long term remains to be seen.”

http://www.shanzai.com/ remark on that article is that ZTE is still singing tried and true Shanzhai tune: “We are good at customisation” [Feb 11, 2011]

ZTE is a Shanzhai success story. Starting out small and then big in China, ZTE is now doing well in North America and is expected to increase market share there even more this year. When their VP was asked this week, why they have been so successful, their Shanzhai their Shanzhai roots showed through.

According to IDC, ZTE shipped 60 million products in 2010. Their exports were mainly to North America and also to Japan, Australia and Latin America.

Now what we have seen, time and time again, is that the successful Shanzhai make handsets that fulfill a local (rather than generalized global) market need. Sometimes that can lead to quirky products, like exchangeable solar batteries, cigarette lighters, or more practical factors like dual SIM support, etc. It turns out that even in “mainstream” North America, catering to the local audience is the key.

Zhang Xiaohong, ZTE’s VP for handsets at the Mobile World Congress said that ZTE’s success is because “We are good at customisation, according to different cultures and customs. We can differentiate”.

It’s ironic that the Shanzhai are often seen as strangers to differentiation because of the high profile of clone models, when actually it’s the Shanzhai’s adaptability that keeps their business strong.

But ZTE and Huawei are not alone. Here is another example, G’Five so far known only in India but expanding rapidly both in India and into the other parts of the world:

India Mobile Handset shipments grow 6.7%, to 101 million units in 12 Months ending June 2009 [IDC India, Oct 9, 2009]

Market intelligence firm, IDC’s India Quarterly Mobile Handsets Tracker, 2Q 2009, September 2009 release issued today states that in terms of units shipped Nokia had the largest share of 56.8%, followed by Samsung with a 7.7% share while LG stood third with a 5.4% share in the 12-month period ended June 2009.

…

New Vendors Make a Mark
A number of new vendors entered the India mobile handsets market in the last 12 to 18 months to carve a niche for themselves by offering feature-rich (dual SIM card, full QWERTY keyboard) and application-rich (IM enabled) mobile handsets at attractive price points. They also introduced entry-level models for the ‘price sensitive’ Indian consumer.

Figure 1: India Quarterly Mobile Handsets Market: New Vendor Shipments Growth

Source: IDC’s India Quarterly Mobile Handsets Tracker, 2Q 2009, September 2009 releasee

This development shows that even in a crowded market there is room for vendors to enter with the right product-feature-price mix.

IDC’s India quarterly mobile handsets tracker 2Q 2010 [Sept 28, 2010] (some emphasis is mine):

According to Mr. Anirban Banerjee, Associate Vice President-Research, IDC India, “In the recent quarters several new players successfully launched their own devices at significantly lower Average Selling Values (ASVs) in the price sensitive India market. Such handsets found ready acceptance amongst first time buyers, especially from small towns and villages.”

This influx of new brands led to a spurt in overall market and saw ‘emerging vendors’ corner as much as 33.2% of total India mobile handset shipments in 2Q 2010. The Finnish handset maker Nokia retained its No.1 spot with a market share of 36.3% in terms of units shipped. The Korean electronic giant Samsung retained the No. 2 position, while Chinese brand G’Five emerged as the No. 3 player.

…

According to IDC’s India Quarterly Mobile Handsets Tracker, 2Q 2010, September 2010 release, the number of emerging vendors in India’s burgeoning mobile handsets market grew to 35 in 2Q 2010 and they together garnered 33.2% of total shipments for the first time during the April-June 2010 quarter. This represented a manifold increase from five (5) new vendors representing a 0.9% combined share of units shipped in the January-March 2008 quarter.

During the last 6 months (January-June 2010) the top five mobile handset vendors in India were Nokia, Samsung, G’Five, Micromax and Spice.

Figure 1: India Mobile Handsets Market: New Vendor Contribution to Shipments, Q1 2008 to Q2 2010

Source: IDC India, 2010

July-September 2010 mobile phone shipments (sales) log 3.6% quarter-on-quarter growth to
cross 40 million units: ‘Emerging Vendors’ capture 41.2% combined share [IDC India, Dec 29, 2010] (emphasis is mine):

… the Finnish handset maker Nokia had the largest share of 31.5%* in terms of units shipped during 3Q 2010.
The Chinese brand G’Five emerged as No. 2 player in terms of unit shipments market share and Korean handset manufacturer Samsung stood at No. 3 in 3Q 2010.

The India mobile handsets market continued to grow in 3Q 2010 as well to record a quarter-on-quarter (3Q 2010 over 2Q 2010) growth of 3.6%* to touch 40.08 million units in the quarter, according to IDC India. The year is expected to end with total mobile handset sales of 155.9 million units.

The number of emerging vendors in India’s burgeoning mobile handsets market grew to 68 and they together garnered 41.2%* of total shipments (sales) for the first time during the July-Sep 2010 quarter.

…

Smartphone prices continued to drop through the year and as competition increased, devices were made available by vendors at successively lower price points. So, while 80%* of total India smartphone sales were below the ASV (Average Sales Value) of Rs. 18,000 in 2Q 2010, this proportion increased to 90%* in 3Q 2010.

Top G’Five mobile phones in India [Jan 13, 2011] (emphasis is mine)

Which are the top two cell phone brands today in India in terms of shipment volumes? Nokia and Samsung, many of us would like to think, right? Or maybe Sony…or LG…or Micromax which has been advertising quite a bit.

Not quite, folks. A recent report from leading market intelligence firm IDC India reaffirms the Finnish telecom giant’s status as the leading cell-phone player in the country, with Nokia accounting for 31.5% of the domestic cell-phone market during the July-September period last year. But, surprisingly, a little known Chinese brand called G’Five has made it to the second spot by capturing a 10.6% market share–with Samsung coming in third at 8.2%!

Sounds shocking, right? How can a Chinese player, without any big-ticket advertising campaign or any celebrity as its brand ambassador, manage to create such a big impact in the cut-throat Indian cell phone industry–without any fanfare? Well, the answer lies in G’Five’s strategy of rolling out a bevy of feature-rich phones at competitive prices (in the Rs.1,400-Rs.7,000 range), targeted exclusively at urban first-time buyers and those in semi-urban and rural areas looking to upgrade from basic phones.

So if you are looking to buy a G’Five mobile phone, here is a list of eight affordable (costing not more than Rs.5,000) models from around 26 G’Five phones currently available in India (in the order of ascending prices)– with each of them having their own USPs.

G’Five D10 Price: Rs.1,820 [US$40.4] … G’Five X5 Price: Rs.1,899 [US$42.1] … G’Five N92 Price: Rs.2,249 [US$49.9] … G’Five i310 Price: Rs. 2,400 [US$53.2] … G’Five M33 Price: Rs.2,499 [US$55.4] … G’Five L600 Price: Rs 2,700 [US$59.9] … G’Five X33+ Price: Rs.3,786 [US$83.9] … G’Five V60 Price: Rs. 4,490 [US$99.6] …

And these phones are not crap as you can even see from their pictures (for features info it is worth to go into the article).

Note that to target the upper part of this range Social networking is Nokia’s latest mobile strategy [Feb 17, 2010] (which the above phones do not have):

The company’s latest launch on Nokia X2-01 mobile, at Rs 4,459 [US$99.2] is one such product. “QWERTY is one of the fastest growing mobile phone category in the world due to the rise in messaging and social networking. The Nokia X2-01 makes it easy to set up chat and email direct from the mobile phone,” said Nokia India General Manager-South T S Sridhar. “This means superfast access to your favourite Ovi Mail, Ovi Chat or other popular accounts.”

As young users want to stay connected with friends on the move, instant messaging is rapidly on the rise. With messaging devices like Nokia X2- 01, we are empowering the youth, he said. The handset also provides live updates from social networks such as Facebook, Orkut and Twitter directly from home screen. The Nokia X2-01 is Series 40 2G phone with VGA camera and FM radio. It has one click access the music player and has 3.5mm AV connector ideal for headphones or speakers. It also has Bluetooth and can support up to an 8GB micro SD memory card and has a standby battery time of up to 20 days, he claimed. For affordable access to internet, Nokia has also tied up with country’s largest mobile service provider Airtel which allows 100 mb of free data download per month for 12 months to its subscribers on this phone. Under this scheme one can access Face Book, and OVI Chat and Ovi Mail free of charges.

Gfive Mobile Phones (by Devika Rajpali)

The company of GFive is from China. The investors of the company are a syndicate named Zerone group that of the most esteemed OEM factories that boost of producing around 100 million mobile phones. The GFive mobile phones are the hottest running brand in indisputable imei china mobiles. The company has now established itself completely in the field of tech support, repairing and software installation. You will find the GFive mobile phone to be very stylish with large number of mobile phones to offer to its consumers. The company claims to have experience, confidence and data along with the in-depth insight of their Chinese mobile phones.

The KingTech Telecom (Shenzhen) Co Ltd. is behind the brand with KingTech Telecom (HK) Limited behind the export activities. As far as India is concerned the arrangement will be developed into a stronger local representation as Victor Infotech ties up with King Tech Telecom [Nov 11, 2010] (emphasis is mine):

Victor Infotech Ltd has tied up with King Tech Telecom Ltd (a Hong Kong-based telecom company) to form a joint venture company — Asian Telecom Ltd. The majority stake of 51% in the new company will be held by King Tech Telecom Ltd and the balance 49% equity will be held by Victor Infotech Ltd.

Asian Telecom Ltd., the new joint venture company, will come into being with immediate effect to launch the G’Five brand of mobile phones in the Indian market. The company plans to take the G’Five brand of mobiles to new heights in India and achieve 20% of the market share in the next two years.

As part of the collaboration, Kingtech Telecom shall manufacture the mobile phones and Victor Infotech will be responsible for distribution and marketing of the phone in India. Initially Kingtech Telecom will manufacture the Indian specific mobile phones in Hong Kong [rather in Shenzen] and gradually the same shall be manufactured in India.

The Indian mobile phone market is growing very fast. The company expects the sales of the mobile phones to grow 5 times in the next two years and plans to take advantage of this growth to gain the maximum market share. To achieve this, the company shall introduce many variations in its mobile phones, which shall be specific to the needs of the Indian consumer.

Meanwhile for other parts of the world a new sales and marketing operation has been set up: GLX mobile – G’FIVE Mobile’s Brother Company [Dec 14, 2010] (emphasis is mine)

A new member of Zerone Group called GLX mobile has been founded. With its full name as GLX International Limited, GLX mobile is dedicated in global distribution of GLX mobile phone.

Since G’FIVE is a member of Zerone Group, G’FIVE and GLX are brother companies. The new-founded GLX focuses on international markets, especially emerging markets. GLX mobile covers the whole range of mobile phone user market, from low-end to high-end with stylish and unique handsets.

GLX is aiming to create golden life for worldwide consumers with all ranges of mobile phones.

And the GLX company’s website indicates that it has taken over (almost all) the rest of the existing G’Five business network: