Why Android will not suffer from Verizon's iPhoneFebruary 10, 2011: 11:31 AM ET
Here's why Piper is wrong.
In the U.S., we tend to think that we are the center of the world and what happens here sets a trend for the rest of the world. That's why it is no surprise to hear Americans say that the release of the Verizon (VZ) iPhone today signals the end of the ascent of Android. Piper Jaffay's Gene Munster is one of these believers. In a note to investors this morning, he said:
We believe Android share will decline from 32% in December to 26-28% in March. iPhone shares should increase from 16% to 20%. Beyond March, we continue to view Android and iPhone as the two OSes that matter in mobile (we estimate combined~65% share long term) with Android controlling ~40% share and iPhone ~25%,with the other OS brands continuing to become less relevant over time.
That's wrong for a lot of reasons...
First of all, I do believe that sales of high-end 'Droids' on Verizon will be affected. I don't think there will be a cliff jump, but a significant redirection of marketing by Verizon will slow high-end Android sales on that one carrier. I don't expect middle of the road or low-end Verizon Android sales (like the Motorola (MMI) Citrus for instance) to be affected, however. Nor will sales be affected on T-Mobile and Sprint (S)
Believe Verizon Is Android's Strongest Carrier. Based on data from comScore, we believe that as of November 2010, Verizon accounted for almost half of all Android subscribers in the US. We estimate that Verizon accounted for roughly 20% of total Android users worldwide. We estimate that 1.5m iPhoneswill sell on Verizon in partial quarter availability in Q1. Thus we believe the iPhone could disrupt around 1m Android units on Verizon in Q1, assuming Verizon typically would have sold 4-5m Android units excluding the iPhone.
While Verizon may carry half of the U.S. Android market, only a percentage of that is high-end (potential iPhone customers) and a percentage of those will move to iPhone.
And a percentage of Verizon's iPhone gains will be AT&T's losses. Also, now that it has lost iPhone exclusivity, AT&T (T) has started to acquire and market its own respectable Android devices. While I don't think it will make up for the Droid losses, it will dampen the blow.
It is important to put the Verizon impact on Android in perspective. It is just one carrier in one, albeit large, country.
According to Ericsson, by the end of 2011, 1 billion people will be connected to the mobile web. Smartphones just passed PCs in overall sales. U.S. portion will be a but a small minority within that 1 billion figure.
To put the world market in perspective, one Chinese carrier, China Mobile, has 584 million subscribers. That's almost double the whole U.S. population. There are also monster populations of people in India and huge populations in Brazil, Russia and Indonesia who want to get on the mobile web. A large majority of those users will never be able to afford an Apple (AAPL) product. However, as Android devices begin to dip below the $100 barrier this year, they will have an opportunity.
Symbian is expected to hit the reset button with Microsoft's Windows Phone 7 tomorrow, but it could be well into 2011 before Nokia (NOK) ramps up with their new OS. In the meantime, who is going to want to buy a obsoleted Symbian phone? These are huge numbers of potential customers and Android stands to benefit directly from this exodus, starting tomorrow.
The global numbers.
The reality is that a very small portion of the world's population can afford a $600 iPhone (subsidies don't exist in most countries). The $100 smartphone that does most of what a Droid or iPhone can do is going to mop up. Heck, even in the U.S., a lot of people don't want to spend more than they are paying for their current feature phone. Android smartphones are now coming in at feature phone prices with feature phone plans.
For every Verizon iPhone customer that is added, I'm willing to bet another feature phone user is moving to Android.
A billion people on smartphones at the end of 2011 is a lot of potential customers. A single big carrier in a single country isn't going to slow Android's growth.
More on Fortune.com
- RBC Capital: Verizon will sell more than a million iPhones in its first week (tech.fortune.cnn.com)
- Piper: Android to become billion dollar business in 2011 (tech.fortune.cnn.com)