For many handset vendors, the world has turned upside down. Nokia's $40 feature phones are vastly more profitable than Sony Ericsson's $200 Android models. This is not how the smartphone revolution was supposed to turn out.
The latest handset industry reports reveal a market still characterized by exceptional smartphone growth - and deep trouble for most vendors. Globally, smartphone volumes mushroomed by more than 50% YoY in 4Q11. Feature phone sales continued a gentle decline. But in 2012, volumes are still likely to be close to the billion unit mark. Most vendors fled this billion unit market 1-3 years ago, leaving it essentially to Nokia and a cluster of Asian white label firms.
Partly because its main rivals have stopped product development, Nokia is now eking out 13% operating margins in the much-maligned feature phone segment. This is like the Concord buggy staging a profit rebound in 1910. Dominating a shrinking market is not a long-term strategy, but could buy Nokia some time to build a viable low-end smartphone strategy. Most of its rivals who focused on Android smartphones are now stumbling badly. Motorola, Sony, HTC, LG and others opted to neglect feature phone development in favor of chasing hot smartphone growth - and are now fully exposed to the fearsome Apple-Samsung chimera.
By now, everyone knows that Apple and Samsung are mopping up the high-end handset growth. Samsung's volumes probably topped 35 M units in 4Q11 and the telecom operating margin at nearly 15% was robust. In contrast, Motorola announced a dismal 4Q11 report last night. Mobile Device sales grew by just 5%, while the unit delivered an operating loss of -$70 Million.
Motorola abandoned the feature phone market in order to chase sizzling Android growth. What it found was sub-McDonald's revenue growth at a loss.
Sony Ericsson delivered -20% handset revenue decline and nearly 250 Million euro pre-tax loss for the Christmas quarter. Even HTC's spectacular growth of early 2011 soured into -20% YoY handset volume declines in November and December.
The supreme irony about the 4Q11 was that Nokia actually managed to eke out 5% sequential revenue growth from its feature phone unit. The annualized revenue decline was a surprising slim -1%. The feature phone market is shrinking - but it isn't the sort of charnel house that the mid-tier smartphone market is turning into.
