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Barclays: Apple, software drive mobile market

Posted: 23 Feb 2010 ?? ?Print Version ?Bookmark and Share

Keywords:Apple? software? mobile market? communications? network?

Apple and software are in the driver's seat in the mobile market but platform fragmentation may be ahead, according to analysts from Barclays Capital who shared their observations from the Mobile World Congress.

On the hardware side, the mobile chip and systems business is still strong, but average selling prices are on the decline. And despite reports of mobile data congesting carrier networks, no big upticks in capital expenditures are on the horizon, they added.

Apple, software in the driver's seat
"Software is the area for handset differentiation, and Apple remains the standard," said Jeff Kvaal, communications equipment analyst at Barclays. "Hardware is less relevant than it once was, and it's harder to light up the show with a nifty new form factor," he added.

The announcement of Windows Mobile 7 was "the most interesting element of the show this year," Kvaal said. Its user interface, borrowing ideas from the Microsoft Zune MP3 media player "appears compelling and closes a strategic hole for them, but vendor response was not wholesale positive because it's not free like Android and does not allow vendors to tailor the interface," he said.

Indeed market watcher Forward Concepts predicts Google Android will rise from just 3.4 percent of the smart phone software market to 20 percent by 2014. But other open source alternatives are on the way.

Just before MWC, Symbian released its first open source version. At the event, Intel and Nokia announced they will merge their Moblin and Maemo Linux environments.

Apple will try to maintain its edge by announcing this summer a new form factor for its iPhone using an upgraded version of its mobile software "I think they will try to change the game on everybodyit bothers them that everyone stole their form factor," said Ben Reitzes, a Barclays' analysts following Apple.

Fragmentation ahead
"I worry the Android and maybe even the Microsoft platforms will be split" as phones emerge using different processors and screen sizes, said Kvaal. "Trying to get Facebook on Android requires 50 different iterations of the same software.

"A lot of handset vendors are worried about fragmentation in Androidkeeping apps running against all those form factors," he said. In addition the relatively high burden Android puts on a host processor leaves some vendors "worried they can't reach the mid- and low tiers of smart phone market," he added.

The fact it can control both the hardware and software is another reason analysts such as Kvaal are bullish on Apple.

Mobile chip ASP decline
Semiconductor analyst Tim Luke said he expects average selling prices of cellphone chips will continue to decline for the next 18 months. That's because the wideband CDMA market is becoming mature and the migration to LTE networks is not expected to kick in until late in 2011.

Despite the falling prices, demand remains strong with Broadcom positive on ramping business at Nokia and Samsung, Luke said. "A number of mid and small mobile chip players said they continue to see foundry tightness with TSMC pushing orders from the second to the third quarter," he added.

Network gear price drop
Chinese network systems suppliers Hua Wei and ZTE were out in force at MWC. Carriers report they are driving down systems prices as much as 50 percent a year, he said.

"Some European carriers are talking about swapping out equipment for a similar price as what they spend on capital maintenance," Patrick said.

Congestion not an issue
Equipment vendors should not bet on an uptick in capital equipment spending in the near future, Patrick added.

Despite reports of mobile data swamping networks at AT&T and O2, "network congestion is not an issue for most carriers, and for others it's manageable," he said.

Nevertheless, mobile data traffic is rising dramatically. To compensate, carriers are expected to spend a greater option of the capital equipment dollars on mobile backhaul networks and femtocells, Patrick said. But they will not increase their cap ex spending overall, he added.

- Rick Merritt
EE Times

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