It’s easy to spot the winners and losers in the mobile phone hardware wars over the last five years.
Apple and Samsung have been winners. Nokia and Blackberry have fallen from grace in a big way, while battling away trying to avoid “also ran” status are the likes of Sony, HTC and LG Electronics.
That’s the hardware players. On the intellectual property side, Britain’s chip design champion ARM Holdings (LON:ARM) has had an astonishing run since being spun out from Acorn computers, the Cambridge computing firm behind the fondly remembered BBC micro computers of the eighties.
Imagination Technologies (LON:IMG), believed to be an Apple supplier, has also had a fantastic ride, though it issued a profits warning earlier this month, suggesting that all might not be as peachy in the smartphone world as had been assumed.
Sound chip manufacturer Wolfson Microelectronics (LON:WLF) is a former Apple supplier that went into a tailspin when it lost the iPod contract. The company moved back into the black at the end of 2012, however, and with Samsung as a major customer, and with the trend for modern phones and tablet computer devices to include three or even four microphones (to help with noise cancellation), the company is confident its technology will enable it to exploit this trend.
To a certain extent, these chip designers and manufacturers don’t care who is winning the mobile phone hardware wars, so long as the market is expanding, which it is.
Of course, the market cannot keep growing like billy-o, and many developed nations may be approaching the stage where everyone who is ever likely to have a smartphone already has one.
However, there is always the upgrade cycle to keep the money rolling in (think that dreadful advert for which comedian Paul Merton asked in the voice-over: “Ashamed of your mobile?”). Meanwhile, smartphone mania will presumably catch on in less well developed markets at some point.
The above does not necessarily mean everything is all tickety-boo for the hardware players, as what might be called the printer ink model could be set to take hold.
To explain, printer manufacturers tend to sell their printers at very low cost and the ink at very, very high cost.
In the mobile handheld communications devices market – smartphones and tablet computers, essentially – Amazon is threatening to shake things up with its Kindle Fire device, which is more than capable tablet device sold at an extremely competitive price point – at, or even below, the cost of production.
As Jeff Bezos, chief executive of Amazon has asserted: “We want to make money when people use our devices, not when they buy our devices.”
Amazon can do this by selling products via its site, which seems to sell just about everything a consumer could desire.
Consuming content on the go is a hot trend, and Amazon is one of the major players in this area; in the UK, for instance, it bought up film streaming service Lovefilm to get a major foothold in this market.
With smartphone screens getting bigger, it is not beyond the realms of possibility that Amazon would consider issuing an Amazon-branded smartphone at a margin-squeezing price point, putting the pressure on the likes of Apple and Samsung. Such a move would replicate its Kindle Fire strategy in the tablet market.
Google has already gone down this route, and while its first Google-branded smartphone was not a roaring success, its acquisition of US mobile phone giant Motorola Mobility was a signal of intent that it intends to have another crack.
Google will not care about making money on selling the hardware. As sponsor of Android, the leading mobile phone operating software, its interest is, and always has been, making advertising dollars – or should we say Irish euros? - through its search engine. It also takes a healthy slice of the cost pf any app sold through its Google Play shop, and it also harvests money through advertising-supported apps via its AdMob service.
One should also, I suppose, throw Microsoft into the mix. It may be making a royal mess of its core desktop market with the release of Windows 8 – there is no truth in the rumour that the much needed redesign of the operating system is code named “hubris” – but it has deep pockets, and needs to ensure that it remains relevant in the smartphone and tablet markets.
Its Surface tablet has not set the heather on fire in the market place, but the company has the money to stick at it.
In the smartphone market it has, by most accounts, belatedly developed an operating system so fine that Nokia has effectively bet the company on it (though this decision might have something to do with Nokia’s new boss being an ex-Microsoft man).
If Nokia does not have the legs to last the course in the smartphone race, it is not unreasonable to suppose Microsoft could step in and buy it; if nothing else, the company has some amazing patents.
Three industry giants selling top of the range devices at middle of the range price points is sure to put the pressure on the hardware firms, with Samsung probably having the most to lose.
Apple would also suffer, but it is much more of a content seller than Samsung, thanks to its iTunes service, and so could presumably afford to cut its prices, but would it want to?
Apple customers seem to revel in paying 50% more for a product that might only be 5% better than the competition.
Apple’s blinding success has been based on shipping mass-market quantities of product at premium prices or, to put it another way, it has been successful at selling Ford Focus quantities of product at Rolls-Royce prices.
Industry observers reckon that Apple’s operating margins are around 30 to 35% on its iPhone range, while Samsung’s smartphone margins are put at around 20%.
If the printer ink model takes hold of the smartphone market, those margins could, like printer ink, quickly run dry.