Back in 1996 I was part of a small startup – Grey Cell Systems – which against all odds won a contract to write a PC based, GSM data stack for Samsung’s first mobile phone. A few weeks after we got the contract we were invited to a meeting at Samsung’s research centre near London, where the phone was being designed. A senior manager had come over from Korea to tell us Samsung’s vision. I could see all of the listening engineers trying to suppress as grin as his translator told the assembled audience that Samsung’s strategy was to become number one in mobile phones by 2001. At the time Samsung didn’t even have a phone – that would take at least three attempts and several years and none of us in that meeting could believe their optimism. They didn’t reach that goal. They still haven’t, but they’re not far off. And since 2003, they’ve been the only company Nokia has admitted to being scared of.
Samsung have made it to number one in Europe: in the first quarter of this year, shipping 13.2 million units – 600,000 ahead of Nokia. But for the last few years I’ve been tracking a slightly different metric – the combined sales of Samsung and LG, which I’ve called Korea Inc. They’ve been closing the gap and in the latest figures from IDC we can see that they can now claim supremacy, pushing Nokia firmly into second place.
To be fair, it’s not been so much a case of Korea Inc. overtaking Nokia in this last quarter, but of Nokia shedding its sales, as it plummets from a market share of 33.8% to 24.2%. It’s one of the bizarre aspects of the mobile phone market that most companies don’t get pushed, they don their lemming suits and head for the cliff. At certain points in the last fifteen years Motorola, Ericsson (latterly Sony Ericsson), Philips and Siemens have all looked like contenders, but each has lost its way and lumbered back to the handset manufacturer’s graveyard, leaving Nokia standing alone as the untouchable leader. Until this quarter Nokia has managed to maintain it’s unassailable position, but it now looks as if it has started on the slippery downwards slope.
What is interesting is that, with the exception of Samsung, the past two years have seen no real challenger to volume sales. Samsung has grown steadily, but failed to put on a convincing sprint to gain pole position. And Nokia and Samsung still remain in a class of their own. Behind them, in number three position is LG, which had potential but has slowly been losing market share for most of the last two years. And vying between themselves for fourth position are Apple and ZTE.
These two tell almost as interesting story as the battle for first place. Few in the industry or high street would believe that they are more or less neck and neck in terms of volume. ZTE have been around longer, so there are probably rather more ZTE handsets being used today than there are iPhones, which many would find difficult to believe. Of course, they have very different demographics. iPhones sell to industry analysts, journalists and those of us who write blogs, whereas ZTE handsets don’t. Which is one of the main reasons why the public perception of each, as well as the revenue per handset for these two companies are at opposite ends of the scale, despite the similarity in their volumes.
ZTE have just announced that they intend to ship 80 million handsets this year and there’s little reason to suspect that they won’t achieve that, or at least something close. If they manage that they’ll easily overtake Apple and have an outside chance of grabbing third place from LG.
Where will the market be in twelve months? It won’t move rapidly. Although companies fall from the ranks due to long term strategic miscalculations, they don’t stay in the top five just because of their handset design, but more importantly because of their skill in controlling their supply chain. Volume and experience breed success, as every cent counts when you’re making tens of million of handsets a month. As does the relationships you have with subcontractors, suppliers, distributors and networks and you brand.
The time and effort it takes to get all of that right means that there is no obvious contender sitting there ready to take Nokia’s place. Apple doesn’t have the breadth of handset range. In fact, unless LG makes a major mistake Apple is probably consigned to slipping in and out of fifth place, but making a lot of money from being at the bottom of the leader table, selling to those with the highest disposable incomes. It’s more likely that ZTE is the most credible challenger to both Samsung and Nokia, unless one of the other Chinese handsets decides to take on the world. I’ve not sat in any of their strategy meetings, but I wonder which of them is quietly putting forward a vision to a room full of sceptical engineers that they will be the company toppling Samsung in 2016?