Business Watch: Make-or-break time as handset launches loom

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It’s crunch time for the manufacturers as the wraps are taken off a number of new devices, with Nokia in particular pinning most of its hopes on its new Windows Phone 8 smartphones

It’s the biggest smartphone launch period of the year and the stakes could not be higher for the world’s biggest mobile phone makers, which are still reeling from Apple’s landmark patent victory over Samsung.

At the time of writing Nokia and Microsoft were preparing to unveil two new devices which they hope will win back lost market share from those two dominant players.

Google’s Motorola Mobility was also poised to unwrap its latest smartphone – its first to use Intel chips – and new devices were to be launched by Sony, ZTE, LG, HTC and Huawei.

And next week Apple is expected to reveal a new iPhone. It may have LTE capability, which analysts at CCS Insight say would be great news for Everything Everywhere which – as reported here last time – has been given a head start over its competitors on LTE in the UK.

Punters have been holding back from upgrading their handsets in anticipation of what will be the most packed release schedule for years.

That means there should be intense pent-up demand for the new devices come the Christmas shopping season: great news for Carphone Warehouse, Phones 4U and other mobile retailers.

But the competition between the handset makers has never been more fierce and Nokia, in particular, has a huge amount riding on the success or otherwise of its Lumia 920 and smaller Lumia 820 devices.

Both will run on the latest Windows Phone operating system, which Microsoft hopes will finally make a dent in the smartphone duopoly of Apple’s iOS and Google’s Android.

Windows wishing
Loss-making Nokia has placed all of its bets on Windows but has yet to prove the massive gamble can pay off. Its slug of the world’s smartphone market has shrunk from 50 percent before the iPhone was launched in 2007 to less than 10 per cent.

In an effort to restore profitability it has cut 10,000 jobs in the past year and a half after booking more than €3 billion in operating losses.

It needs a game-changing device to make serious headway and, while the Lumia devices to date have been pleasant enough to look at, I would be surprised if it can come up with such a handset.

“On a global basis, the key issue is price,” wrote Benedict Evans of Enders Analysis ahead of Nokia’s announcement. “Will it be able to get the cost of entry-level Windows Phone below $200 wholesale?

“This is where a lot of the growth in Android is, especially for prepay. With Windows Phone still unable to go head to head with iPhone on apps and features, Nokia needs to hit lower price points and go after [BlackBerry maker] RIM, Android and feature phone users.”

For Microsoft, successful Lumia sales could persuade more handset makers and carriers to support its

Windows Phone 8 software. Windows mobiles have won less than four per cent of the market, while

Google’s Android phones have 68 per cent and Apple phones have 17 per cent, according to Strategy Analytics.

But the announcement is likely to be eclipsed by that of Apple next week. CCS Insight has predicted that the new iPhone will sell in the “tens of millions” in the Christmas quarter alone, which would make it the Californian company’s most successful device launch ever.

But then again Nokia is not operating in the same premium price point as Apple; it’s real target is Samsung, whose market-leading S III, which usurped the iPhone at the top of the sales charts on its launch in June, is the smartphone every manufacturer wants to outdo right now.

Samsung patent case
Which takes us to the South Korean manufacturer’s $1 billion loss to Apple in the US courts – the court ruled last month that Samsung had infringed patents over a series of devices (although not with the S III).

The ruling remains subject to appeal and also to the possibility that the damages award is tripled for wilful infringement. Apple is also seeking to injunct US sales of eight Samsung devices and a hearing has been set for December.

Samsung’s stock market value plunged by more than $12 billion on the first day of trading after the ruling, but has since made up most of that ground, partly thanks to the delay of the injunction hearing and also thanks to Apple having a similar case against it thrown out of court in Japan.

On the same day Apple’s shares rose, briefly touching a new high of $680 as experts predicted other rivals would have to go back to the drawing board with their own devices to avoid similar losses and payouts.

As things stand, the $1 billion represents just 17 per cent of Samsung’s second quarter operating profit.

But, as Enders Analysis pointed out, such a payout would be “crippling to any other Android [phone maker]: it sends ripples of uncertainty through the ecosystem”.

Nevertheless, Enders concluded that the underlying balance of market share in the industry will almost certainly not change, since the driving dynamic is the wide price gap between Apple and others.

“In our view the key issue driving relative market share between Apple and Android is handset price,” it wrote. “Apple sells iPhones for an average of $650: no Android manufacturer achieves an average of more than $350, and much of the growth in Android is towards the sub-$200 (and even sub-$100) price point. In effect, Android outsells Apple three to one at a half to a third of the price.”

Of course, the ruling could provide a much-needed fillip to Microsoft as it seeks to break through its Windows 8 phones. Mobile operators might be more inclined to push the devices and the likes of HTC, Huawei and others may be more willing to give the operating system a go.

Samsung, meanwhile, can handle the financial blow, but it needs to bounce back with some inventive designs of its own next year – and that injunction hearing will hang over it until December.

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