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5 May 2013
Q1/13 HANDSET MARKET SUMMARY & APRIL SURVEY: SAMSUNG POISED FOR STRONG H1/13 SHARE GAINS
Samsung cements smartphone market share lead in Q1/13: Our wireless store surveys
and recent earnings reports from leading global handset/smartphone OEMs indicated a normal seasonally soft Q1/13 for smartphones sales after a very strong December holiday quarter. Our surveys indicated an increasing sales mix of LTE smartphones in developed markets and ramping sales of affordable 3G smartphones replacing feature phones in emerging markets, particularly China. Strong global sales of Samsung's broad smartphone portfolio including very strong flagship Galaxy S III and Galaxy Note II sales resulted in Samsung increasing its smartphone market share from 28.9% in Q4/12 to 33.0% in Q1/13. Our April surveys indicated a very strong initial Samsung Galaxy S4 global launch with Samsung ramping supply of the Galaxy S4 to over 300 carriers in 155 countries the next several weeks. The S4 ramp combined with our expectations for soft June quarter iPhone sales should result in Samsung extending its leading smartphone market share in Q2/13. Apple and Samsung dominate value share, competitors struggle: We estimate Samsung shipped a remarkable 69.7M smartphones during the seasonally softer Q1/13, an increase from 63.5M smartphones during the strong Q4/12 holiday quarter, resulting in Samsung capturing an impressive 43% of handset industry profits. Further, despite seasonally softer iPhone 5 sales and a stronger mix of legacy iPhone 4S/4 sales, we estimate Apple captured 57% of industry profits. In fact, we estimate Apple and Samsung combined to capture a remarkable 100% of Q1/13 handset industry profits as several competitors such as BlackBerry, Nokia, and LG posted break-even results. During the June quarter, we believe softer iPhone sales combined with Samsung Galaxy S4's global ramp should result in Samsung surpassing Apple for the top share of handset industry profits. April surveys: Our U.S. April wireless store surveys indicated strong initial sales of the recently launched Samsung Galaxy S4 and HTC One smartphones in late April. While the iPhone 5 was a top selling smartphone at all four tier-1 carriers, other top selling products included the Galaxy S4 and the HTC One at AT&T/Sprint and the Samsung Galaxy S III and the Galaxy Note II at Verizon/T-Mobile. Our surveys indicated weakening BlackBerry Z10 sales, but our U.K. surveys indicated strong initial Q10 sales but with limited initial supply.
Qualcomm, Avago, RFMD, Skyworks and Peregrine should benefit from LTE smartphone ramp: We believe the Galaxy S4 global ramp should result in strong sales for RFMD.
Further, while weaker June quarter iPhone sales will impact Avago, Skyworks, Peregrine and TriQuint near term, we believe these suppliers are well positioned to benefit from secular trends of increased RFIC content in an increasing mix of LTE smartphones throughout 2013. Based on results from most leading OEMs, March quarter weighted average ASPs were above our expectations, and we believe this is most positive for Qualcomm's QTL revenue due to strong 3G/4G global ASPs and sales trends. Canaccord Genuity is the global capital markets group of Canaccord Financial Inc. (CF : TSX | CF. : LSE) The recommendations and opinions expressed in this research report accurately reflect the Investment Analysts personal, inde pendent and objective views about any and all the Designated Investments and Relevant Issuers discussed herein. For important information,
please see the Important Disclosures section in the appendix of this document or visit Canaccord Genuitys Online Disclosure Database.
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5 May 2013
Q1/13 HANDSET MARKET SUMMARY & APRIL SURVEY; SAMSUNG WELL POSITIONED FOR H1/13 SHARE GAINS
Updated global handset and smartphone unit estimates by OEM; Q1/13 marks first quarter smartphones outsell feature phones
Based on Q1/13 earnings results from leading OEMs, we believe global handset unit sales declined from 480M units in Q4/12 to 420M units in Q1/13, representing a normal seasonal sequential decrease of roughly 13% during the seasonally softer March quarter. We believe this is the first quarter smartphones outsold feature phones. In fact, we estimate smartphone sales decreased 4% sequentially to 211M units, and we estimate feature phone sales declined 20% sequentially to 209M units. With record 3G subscriber growth in China during the March quarter, we believe affordable Android smartphones contributed to the first quarter of smartphones sales exceeding feature phone sales. Our global surveys during the March quarter indicated an increasing mix of LTE smartphones led by strong sales of the iPhone 5, Samsung Galaxy S III, Samsung Galaxy Note II and other LTE smartphones. Overall, we believe Samsung will grow its dominant smartphone market share due to its impressive Galaxy lineup with the Galaxy Y selling into the channel for under $100, the Galaxy S III mini now sub $300, the Galaxy S III now around $400, and the Galaxy S4 likely to dominate high-end smartphone sales for the next two quarters or more. Figure 1 below is our total combined feature phone and smartphone estimates by OEM, and Figure 2 shows our smartphone estimates by OEM. Figure 1: Handset (feature phone and smartphone) unit sales estimates and market share by OEM (millions)
Canaccord Genuity Handset Unit Sales Estimates by OEM (millions) 2011 1Q12 2Q12 3Q12 4Q12 2012 1Q13 2Q13E 3Q13E 4Q13E 2013E 2014E
Global OEMs Nokia Nokia market share Samsung Samsung market share Apple Apple market share Motorola Mobility Motorola Mobility market share Sony (Sony Ericsson) Sony market share LG LG market share BlackBerry BlackBerry market share HTC HTC market share Huawei Huawei market share ZTE ZTE market share Total Other OEMs Market Share
Total Global Handset Units YoY % Change QoQ % Change
417.1 25.9% 341.6 21.2% 93.1 5.8% 41.4 2.6% 34.2 2.1% 88.1 5.5% 52.8 3.3% 44.6 2.8% 55.2 3.4% 80.5 5.0% 364.5 22.6% 1,613 11.9%
82.7 21.2% 97.2 24.9% 35.1 9.0% 8.7 2.2% 7.2 1.8% 13.7 3.5% 11.1 2.8% 6.9 1.8% 10.5 2.7% 20.5 5.2% 97.4 24.9%
391 2.4% -14.0%
83.7 21.0% 100.9 25.3% 26.0 6.5% 7.2 1.8% 7.8 1.9% 13.1 3.3% 7.8 2.0% 9.2 2.3% 10.8 2.7% 18.4 4.6% 113.9 28.6%
399 6.6% 2.0%
82.9 19.5% 108.7 25.6% 26.9 6.3% 6.0 1.4% 8.8 2.1% 14.4 3.4% 7.4 1.7% 7.7 1.8% 12.1 2.8% 21.2 5.0% 128.7 30.3%
425 5.6% 6.5%
86.3 18.0% 115.2 24.0% 47.8 10.0% 5.7 1.2% 8.7 1.8% 15.4 3.2% 6.9 1.4% 6.6 1.4% 18.6 3.9% 25.4 5.3% 143.4 29.9%
479.9 5.6% 13.0%
335.6 19.8% 422.0 24.9% 135.8 8.0% 27.5 1.6% 32.5 1.9% 56.6 3.3% 33.2 2.0% 30.3 1.8% 52.0 3.1% 85.5 5.0% 483.3 28.5% 1,694 5.0%
61.9 14.7% 115.5 27.5% 37.4 8.9% 2.9 0.7% 8.9 2.1% 15.4 3.7% 6.0 1.4% 4.8 1.1% 17.2 4.1% 19.1 4.5% 130.9 31.2%
420 7.4% -12.5%
64.2 14.9% 120.5 28.0% 25.0 5.8% 2.6 0.6% 9.1 2.1% 15.6 3.6% 7.1 1.6% 7.7 1.8% 18.1 4.2% 19.0 4.4% 141.7 32.9%
430 7.9% 2.5%
65.7 14.5% 126.5 28.0% 29.0 6.4% 2.7 0.6% 9.2 2.0% 16.0 3.5% 7.4 1.6% 8.1 1.8% 19.0 4.2% 19.9 4.4% 148.3 32.8%
452 6.4% 5.0%
71.0 14.0% 144.3 28.5% 49.5 9.8% 3.0 0.6% 10.0 2.0% 17.6 3.5% 6.8 1.3% 8.3 1.6% 21.8 4.3% 22.9 4.5% 151.0 29.8%
506 5.5% 12.0%
262.7 14.5% 506.8 28.0% 140.9 7.8% 11.3 0.6% 37.1 2.1% 64.6 3.6% 27.2 1.5% 28.8 1.6% 76.1 4.2% 80.9 4.5% 572.0 31.6% 1,808 6.7%
231.9 12.3% 566.8 30.1% 187.6 9.9% 7.9 0.4% 37.5 2.0% 64.2 3.4% 25.9 1.4% 33.8 1.8% 86.8 4.6% 87.5 4.6% 555.7 29.5% 1,886 4.3%
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5 May 2013
Figure 2: Smartphone and feature phone unit sales and market share estimates by OEM (millions)
Canaccord Genuity Smartphone Unit Sales Estimates by OEM (millions) 2011 1Q12 2Q12 Global OEMs Apple 93.1 35.1 26.0 Apple market share 18.8% 22.4% 15.9% 3Q12 4Q12 2012 1Q13 2Q13E 3Q13E 4Q13E 2013E 2014E
26.9 15.3% 56.3 32.1% 6.3 3.6% 7.4 4.2% 7.7 4.4% 4.8 2.7% 8.8 5.0% 7.0 4.0% 8.6 4.9% 6.8 5.0% 34.8 19.9%
175.5 45.6% 7.5%
47.8 21.8% 63.5 28.9% 6.6 3.0% 6.9 3.1% 6.6 3.0% 4.6 2.1% 8.7 4.0% 8.6 3.9% 10.8 4.9% 9.2 4.2% 46.3 21.1%
219.7 36.0% 25.2%
135.8 19.0% 214.7 30.0% 35.0 4.9% 33.2 4.6% 30.3 4.2% 20.1 2.8% 30.1 4.2% 25.8 3.6% 32.2 4.5% 26.6 3.7% 131.1 18.3% 714.8 44.6%
37.4 17.7% 69.7 33.0% 6.1 2.9% 6.0 2.8% 4.8 2.3% 2.5 1.2% 8.9 4.2% 10.3 4.9% 10.3 4.9% 9.0 4.3% 46.1 21.9%
211.0 34.9% -3.9%
25.0 11.4% 81.9 37.3% 7.8 3.6% 7.1 3.2% 7.7 3.5% 2.5 1.1% 9.1 4.1% 10.8 4.9% 10.8 4.9% 9.7 4.4% 47.0 21.5%
219.3 34.3% 3.9%
29.0 11.8% 93.0 37.8% 8.8 3.6% 7.4 3.0% 8.1 3.3% 2.7 1.1% 9.2 3.8% 11.9 4.8% 11.9 4.8% 11.1 4.5% 52.9 21.5%
245.9 40.2% 12.2%
49.5 16.3% 111.5 36.8% 11.2 3.7% 6.8 2.3% 8.3 2.7% 3.0 1.0% 10.0 3.3% 13.7 4.5% 14.2 4.7% 13.9 4.6% 60.9 20.1%
303.0 37.9% 23.2%
140.9 14.4% 356.1 36.4% 33.9 3.5% 27.2 2.8% 28.8 2.9% 10.7 1.1% 37.1 3.8% 46.7 4.8% 47.1 4.8% 43.7 4.5% 206.9 21.1% 979.2 37.0%
187.6 14.6% 511.2 39.7% 51.9 4.0% 25.9 2.0% 33.8 2.6% 7.9 0.6% 37.5 2.9% 55.8 4.3% 61.1 4.7% 59.7 4.6% 256.1 19.9% 1,288.8 31.6%
Samsung Samsung market share Nokia Nokia market share BlackBerry BlackBerry market share HTC HTC market share Motorola Mobility Motorola Mobility market share Sony (Sony Ericsson) Sony market share LG LG market share Huawei Huawei market share ZTE ZTE market share Total Other OEMs Market Share
Total Global Smartphone Units YoY % Change QoQ % Change
95.2 19.3% 77.3 15.6% 52.8 10.7% 44.6 9.0% 18.6 3.8% 21.3 4.3% 20.2 4.1% 20.0 4.1% 14.9 3.0% 36.2 7.3% 494.2 66.6%
44.5 28.4% 11.9 7.6% 11.1 7.1% 6.9 4.4% 5.1 3.3% 5.2 3.3% 4.9 3.1% 5.1 3.3% 5.2 3.3% 21.5 13.7%
156.4 53.6% -3.2%
50.5 30.9% 10.2 6.2% 7.8 4.8% 9.2 5.6% 5.5 3.4% 7.4 4.5% 5.3 3.2% 7.6 4.7% 5.4 3.3% 28.4 17.4%
163.3 47.9% 4.4%
Canaccord Genuity Feature Phone Unit Sales Estimates by OEM (millions) 2011 1Q12 2Q12 3Q12 4Q12 2012 1Q13 2Q13E 3Q13E 4Q13E 2013E 2014E
Global OEMs Nokia Nokia market share Samsung Samsung market share Motorola Mobility Motorola Mobility market share Sony (Sony Ericsson) Sony market share LG LG market share Huawei Huawei market share ZTE ZTE market share Total Other OEMs Market Share
Total Global Feature Phone Units YoY % Change QoQ % Change
339.8 30.4% 246.4 22.0% 22.8 2.0% 12.9 1.1% 67.9 6.1% 35.2 3.1% 65.6 5.9% 328.3 29.3% 1,118.8 -2.3%
70.8 30.2% 52.8 22.5% 3.6 1.5% 2.0 0.9% 8.8 3.8% 5.4 2.3% 15.3 6.5% 75.9 32.4%
234.6 -16.3% -20.0%
73.5 31.2% 50.4 21.4% 1.7 0.7% 0.4 0.2% 7.8 3.3% 3.2 1.4% 13.1 5.6% 85.4 36.3%
235.5 -10.7% 0.4%
76.6 30.7% 52.4 21.0% 1.2 0.5% 0.0 0.0% 7.4 3.0% 3.5 1.4% 14.4 5.8% 93.8 37.6%
249.2 -11.6% 5.8%
79.7 30.6% 51.7 19.9% 1.0 0.4% 0.0 0.0% 6.8 2.6% 7.8 3.0% 16.2 6.2% 97.0 37.3%
260.3 -11.2% 4.4%
300.6 30.7% 207.4 21.2% 7.4 0.8% 2.4 0.2% 30.8 3.1% 19.9 2.0% 58.9 6.0% 352.2 36.0% 979.5 -12.4%
55.8 26.7% 45.8 21.9% 0.4 0.2% 0.0 0.0% 5.1 2.4% 6.9 3.3% 10.1 4.8% 84.8 40.6%
208.9 -10.9% -19.7%
56.4 26.7% 38.6 18.3% 0.1 0.1% 0.0 0.0% 4.7 2.2% 7.3 3.5% 9.3 4.4% 94.7 44.8%
211.1 -10.3% 1.1%
56.9 27.6% 33.6 16.3% 0.0 0.0% 0.0 0.0% 4.1 2.0% 7.1 3.5% 8.8 4.3% 95.4 46.3%
206.0 -17.3% -2.4%
59.8 29.4% 32.7 16.1% 0.0 0.0% 0.0 0.0% 3.9 1.9% 7.6 3.7% 9.0 4.4% 90.2 44.4%
203.2 -21.9% -1.4%
228.8 27.6% 150.7 18.2% 0.6 0.1% 0.0 0.0% 17.9 2.2% 28.9 3.5% 37.3 4.5% 365.1 44.0% 829.3 -15.3%
179.9 30.1% 55.6 9.3% 0.0 0.0% 0.0 0.0% 8.4 1.4% 25.6 4.3% 27.8 4.7% 299.6 50.2% 596.9 -28.0%
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5 May 2013
Samsung gains smartphone market share during Q1/13; anticipate further share gains in Q2/13 with the Galaxy S4 ramp and broad smartphone portfolio
Given Samsung's strong global brand, broad portfolio of smartphones across a wide price range, and very strong flagship Galaxy S III and Galaxy Note II smartphone sales, we believe Samsung grew its overall leading unit market share and leading smartphone market share position during Q1/13. In fact, we estimate Samsung increased its position as the top selling handset OEM with 27.5% of the global handset unit market share in Q1/13 from 24.0% in Q4/12. Further, we believe Samsung was the top selling smartphone OEM and grew its smartphone unit market share to 33.0% in Q1/13 from 28.9% in Q4/12. In fact, we estimate Samsung shipped an incredible 69.7M smartphones in the seasonally softer March quarter, an increase from strong December holiday quarter sales of 63.5M smartphones. Due to our expectations for softer Q2/13 iPhone sales during Apple's transitional June quarter combined the strong ramp of the Galaxy S4 to over 300 carriers in 155 countries, we believe Samsung will grow its overall global handset and smartphone share during Q2/13. After a very strong December quarter for iPhone sales post the iPhone 5 launch, we estimate Apple's global unit market share declined during Q1/13 to 8.9% versus 10.0% in Q4/12, and we estimate Apple's global smartphone unit market share declined to 17.7% versus 21.8% in Q4/12. Given our expectations for a transitional June quarter for iPhone sales before a potential iPhone 5S refresh later in the September quarter, we believe Apple could lose material global handset and smartphone market share to Samsung and other Android OEMs during Q2/13 and Q3/13.
Android share gains in Q1/13 due to strong Samsung and local Chinese OEM sales; expect further Android share gains in Q2/13
Due to strong sales of Samsung's high-volume Android smartphones and ramping affordable Android smartphone sales from local Chinese OEMs in emerging markets, we estimate Android increased its overall market share during Q1/13 to 70.5% versus 66.9% in Q4/12. Given our expectations for softer iPhone sales in the June quarter and given the strong global ramp of leading flagship Android smartphones from Samsung, HTC, LG and other Android OEMs as well as ramping affordable 3G Android smartphones from local Chinese OEMs, we anticipate Android will increase its dominant market share during Q2/13 to roughly 75% of total smartphone sales. After a strong December quarter of share gains for iOS due to the iPhone 5 ramp, we estimate iOS' overall smartphone market share declined during Q1/13 to 17.7% versus 21.8% in Q4/12. Given our June quarter iPhone estimates of 25M units, we believe iOS will lose further smartphone market share to Android and other competing mobile OS platforms during Q2/13. With BlackBerry shipping the BB10 OS based Z10 and introducing the Q10 with a physical QWERTY keyboard, we estimate modest BlackBerry smartphone share gains during the June quarter given initial sales into the channel combined with pent-up demand by loyal BlackBerry customers. However, we believe the carrier pricing for the new Q10 smartphone versus competing high-end smartphones creates a tough environment for BB10 sales to turnaround BlackBerry's long-term business trends. Further given BlackBerry's small smartphone market share and declining subscriber base, we struggle to envision how BlackBerry can sustain a completely different mobile ecosystem with limited carrier support, developer interest, or applications base. As such, we believe BlackBerry
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5 May 2013 will struggle to create a long-term competitive ecosystem with the new BB10 OS and estimate its smartphone market share could decline below 3% exiting 2013. Finally, our smartphone OS market share estimates indicate modest share gains for the Windows Phone 8 mobile OS due to the ramp of affordable Nokia Lumia smartphones, particularly the Lumia 620 in China, SE Asia and Europe. In fact, we estimate Windows Phone 8 gained only modest smartphone share during Q1/13 to 4.7% versus 3.7% during Q4/12. During Q2/13, we estimate modest share gains for Windows Phone 8 given our expectations for continuing iOS share losses combined with Nokia ramping its affordable Lumia 520 and 720 smartphones into mid- and low-tier international markets. In fact, Nokia guided Lumia unit volumes should increase sequentially during the June quarter by a greater percentage than the 27% sequential increase in the March quarter. However, with Windows capturing less than 5% of the smartphone market in 2012, we believe Microsoft and its hardware partners face another year of heavy investment in an attempt to drive Windows smartphones to become a viable third ecosystem. Figure 3: Smartphone operating system unit market share estimates
Canaccord Genuity Smartphone OS Estimates (millions) 2011 1Q12 2Q12 3Q12 4Q12 2012 1Q13 2Q13E 3Q13E 4Q13E 2013E 2014E
Android Android market share Apple (iOS) iOS market share Microsoft Windows Mobile Phone Microsoft market share BlackBerry (BB and QNX) BlackBerry market share Symbian Symbian market share Total Other OSs Market share
Total Global Smartphone Units YoY % Change QoQ % Change
252.8 51.2% 93.1 18.8% 9.7 2.0% 52.8 10.7% 76.2 15.4% 9.6 1.9%
494.2 66.6%
90.7 58.0% 35.1 22.4% 5.3 3.4% 11.1 7.1% 9.8 6.3% 4.4 2.8%
156.4 53.6% -3.2%
110.7 67.8% 26.0 15.9% 6.9 4.2% 7.8 4.8% 6.2 3.8% 5.6 3.5%
163.3 47.9% 4.4%
125.4 71.4% 26.9 15.3% 6.0 3.4% 7.4 4.2% 3.4 1.9% 6.4 3.6%
175.5 45.6% 7.5%
147.0 66.9% 47.8 21.8% 8.2 3.7% 6.9 3.1% 2.2 1.0% 7.6 3.5%
219.7 36.0% 25.2%
473.7 66.3% 135.8 19.0% 26.5 3.7% 33.2 4.6% 21.6 3.0% 24.1 3.4%
714.8 44.6%
148.7 70.5% 37.4 17.7% 10.0 4.7% 6.0 2.8% 0.5 0.2% 8.4 4.0%
211.0 34.9% -3.9%
165.0 75.2% 25.0 11.4% 12.2 5.6% 7.1 3.2% 0.3 0.1% 9.8 4.5%
219.3 34.3% 3.9%
183.8 74.7% 29.0 11.8% 16.1 6.5% 7.4 3.0% 0.1 0.0% 9.6 3.9%
245.9 40.2% 12.2%
214.4 70.8% 49.5 16.3% 18.8 6.2% 6.8 2.3% 0.1 0.0% 13.4 4.4%
303.0 37.9% 23.2%
711.9 72.7% 140.9 14.4% 57.0 5.8% 27.2 2.8% 1.0 0.1% 41.1 4.2%
979.2 37.0%
907.6 70.4% 187.6 14.6% 106.2 8.2% 25.9 2.0% 0.0 0.0% 61.3 4.8%
1,288.8 31.6%
Going forward, we anticipate share shifts in Q2/13 with iOS losing smartphone share to Android as well as incremental market share gains for Windows Phone 8 and BB10 from current small levels. Therefore, we estimate iOS smartphone market share will decrease to an estimated 11.4% in Q2/13 versus 17.7% in Q1/13 with Android's smartphone market share increasing from 70.5% in Q1/13 to 75.2% in Q2/13.
Apple (57%) and Samsung (43%) combine to capture 100% of handset industry profits (value share); Samsung poised for Q2/13 value share gains
In Figure 4 on page 6 we calculate the quarterly share of handset industry sales and profits by OEM by quarter. Apple and Samsung continue to dominate the share of industry profits. In fact, due to operating losses from smaller scale competitors trying to compete, Apple and Samsung's combined share of industry profits have exceeded 100% in previous quarters. While Apple and Samsung continue to dominate the share of industry profits, improving cost structures and results from other OEMs have reduced Apple and Samsung's combined share to 100% from levels above 100% the past several quarters.
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5 May 2013
Figure 4: Quarterly share of industry sales and profits for leading OEMs
Mobile Device Sales Market Share by leading OEMs
Quarterly Mobile Device Sales by OEM ($USD) Apple iPhone Sales Apple sales market share Nokia Mobile Device Sales Nokia sales market share Samsung Mobile Device Sales Samsung sales market share BlackBerry Mobile Device Sales BlackBerry sales market share Motorola Mobile Device Sales Motorola sales market share Sony (Sony Ericsson) Mobile Device Sales Sony sales market share LG Mobile Device Sales LG sales market share HTC Mobile Device Sales HTC sales market share Total Mobile Device Sales for Leading OEMs 2011 61,006 31% 33,204 17% 47,638 24% 15,007 8% 8,986 5% 7,363 4% 10,259 5% 15,758 8% 199,221 Q112 22,690 41% 5,587 10% 16,490 30% 2,858 5% 2,194 4% 1,207 2% 2,139 4% 2,297 4% 55,462 Q212 16,245 33% 5,092 10% 17,940 36% 1,609 3% 1,967 4% 2,108 4% 1,999 4% 3,018 6% 49,978 Q312 17,125 31% 4,664 8% 23,490 42% 1,691 3% 1,778 3% 2,321 4% 2,168 4% 2,498 4% 55,735 Q412 30,660 43% 5,071 7% 25,183 36% 1,572 2% 1,514 2% 1,868 3% 2,570 4% 2,058 3% 70,497 2012 86,720 37% 20,414 9% 83,104 36% 7,730 3% 7,453 3% 7,504 3% 8,876 4% 9,871 4% 231,672 Q113 22,955 36% 3,751 6% 27,317 43% 1,540 2% 1,018 2% 1,943 3% 2,960 5% 1,473 2% 62,957
With Samsung growing its overall market share in both smartphones and overall mobile phones during Q1/13, we estimate Samsung captured an impressive 43% of handset industry profits versus 34% in Q4/12. Further, despite seasonally softer iPhone 5 sales and
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5 May 2013 a stronger mix of legacy iPhone 4S/4 sales, we estimate Apple still captured 57% of industry profits, but Apple's share of industry profits declined from 72% in Q4/12. However, we believe Apple's value share of the handset market is even higher than our estimates in Figure 4 considering Apple's dominant market share of the tablet market, as some Android OEMs such as Samsung and HTC include tablet sales in reported smartphone sales and profits. We estimate Apple and Samsung combined to capture a remarkable 100% of Q1/13 handset industry profits as several competitors such as BlackBerry, Nokia, and LG posted break-even results to slight profits offsetting ongoing losses from Motorola. During the June quarter, we believe softer iPhone sales combined strong Samsung Galaxy S4 sales could result in Samsung surpassing Apple for the top share of handset industry profits. Given the current competitive dynamics, we believe Apple and Samsung will maintain dominant value share during Q2/13 and likely throughout 2013 and 2014.
APRIL SURVEY: SAMSUNG GALAXY S4 AND HTC ONE LAUNCH WITH STRONG INITIAL SALES; GALAXY S4 LIKELY THE TOPSELLING SMARTPHONE DURING Q2/13 AND Q3/13
Our U.S. April wireless store surveys indicated strong initial sales of the flagship Samsung Galaxy S4 and HTC One smartphones at the end of April. Given these smartphones launched in the later half of April, we believe the iPhone 5 remained the top-selling smartphone in the U.S. market during the entire month of April. In Figure 5 on page 8, we provide a summary of our surveys for the leading smartphone sales by OEM at each of the top four carriers in North America over the past four months. While the iPhone 5 was a top selling smartphone at all four tier-1 carriers, other top selling smartphones included the Samsung Galaxy S4 and the HTC One at AT&T/Sprint and the Samsung Galaxy S III and the Galaxy Note II at Verizon/T-Mobile. Our surveys indicated disappointing sales trends for the BlackBerry Z10 with sales levels down sharply from the first week of launch. We estimate roughly 20,000 to 30,000 Z10's are selling per week combined at AT&T, Verizon, and T-Mobile in the U.S. market. Our surveys indicated limited consumer interest, modest carrier support, and limited store representative support for the Z10. Further, given the very strong initial sales, consumer interest, and Samsung's marketing budget for the Samsung Galaxy S4, we anticipate the Galaxy S4 could emerge as the top selling smartphone during the June quarter and contribute to ongoing soft Z10 sales. In fact, Samsung recently highlighted potentially limited initial supply for the Galaxy S4 given the overwhelming global demand. Our recent survey work indicated supply has already improved and large volumes are ramping into the global channel.
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5 May 2013 Figure 5: Month-over-month comparison of top selling handset models past 4 months
Top 3 Smartphones January/13
Apple iPhone 5 ($200/$300/$400)
February/13
Apple iPhone 5 ($200/$300/$400) Samsung Galaxy S III ($200) Nokia Lumia 920 ($100) Apple iPhone 5 ($200/$300/$400) Samsung Galaxy S III ($200) Samsung Galaxy Note II ($300) Apple iPhone 5 ($200/$300/$400) Samsung Galaxy S III ($100/$150) Samsung Galaxy Note II ($300) Samsung Galaxy S III ($280) Samsung Galaxy Note II ($370) Google Nexus 4 ($200)
March/13
Apple iPhone 5 ($200/$300/$400) Samsung Galaxy S III ($200) Samsung Galaxy Note II ($300) Apple iPhone 5 ($200/$300/$400) Samsung Galaxy S III ($200) Samsung Galaxy Note II ($300) Apple iPhone 5 ($200/$300/$400) Samsung Galaxy S III ($100/$150) Samsung Galaxy Note II ($300) Samsung Galaxy S III ($550) Samsung Galaxy Note II ($680) Google Nexus 4 ($458)
April/13
Apple iPhone 5 ($200/$300/$400) Samsung Galaxy S4 ($200) HTC One ($200/$300) Apple iPhone 5 ($200/$300/$400) Samsung Galaxy S III ($100) Samsung Galaxy Note II ($300) Apple iPhone 5 ($200/$300/$400) Samsung Galaxy S4 ($250) HTC One ($200) Apple iPhone 5 ($580/$680/$780) Samsung Galaxy S III ($550) Samsung Galaxy Note II ($680)
AT&T
Samsung Galaxy S III ($200) Nokia Lumia 920 ($100) Apple iPhone 5 ($200/$300/$400)
Verizon
Samsung Galaxy S III ($200/$250) Samsung Galaxy Note II ($300) Apple iPhone 5 ($200/$300/$400)
Sprint
Samsung Galaxy S III ($200/$250) Samsung Galaxy Note II ($300) Samsung Galaxy S III ($280)
T-Mobile
Top vendors
Smartphone ASP
$100 - $400
$100 - $400
$100 - $680
$100 - $680
Growing global smartphone sales in April with secular trends of smartphone growth in emerging 3G markets and prepaid channels
Our global surveys indicated increasing overall smartphone sales in April after strong sales of affordable smartphones during the March quarter, especially in China. Further, our monthly surveys indicated a continuing secular trend of smartphone share gains versus feature phones with growing sales of low-end and mid-tier 3G Android smartphones from Chinese OEMs such as Coolpad, Lenovo, Xiaomi, BBK and other local Chinese brands as well as for Samsung's broad portfolio of affordable smartphones targeting emerging markets. In fact, the three leading Chinese carriers reported successive record combined 3G subscriber net additions for the months of January, February and March. In addition, Qualcomm, on its recent Q2/F2013 earnings call on April 23, highlighted the success of its Qualcomm Reference Design (QRD) program with over 200 devices based on QRD program launched to date. Further, with both MediaTek and Qualcomm adding quadcore chipset support to their respective turnkey programs, we expect a growing trend of affordable high-end Android smartphones from these local Chinese OEMs. Qualcomm highlighted Chinese OEM customers are now shipping smartphones based on its quad-core Snapdragon 8X25Q QRD solution, as well as having a developing pipeline of LTE chipsets for its reference design program to support the anticipated roll out of LTE in China. Our global surveys also indicated strong TD-SCDMA smartphone sales as evidenced by record TD-SCDMA China Mobile subscriber net additions during the December and March quarters. We believe the strong TD-SCDMA smartphone sales during the March quarter should benefit HOLD-rated Spreadtrum (SPRD : NASDAQ : $20.61 | HOLD), as stronger TDSCDMA sell-through trends during the March quarter could help offset typical seasonally
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5 May 2013 slower 1H TD-SCDMA sales trends. Further, based on the host of affordable Android and Windows smartphones announced during the March quarter, we anticipate ramping smartphone sales in emerging markets during 2013.
In-line March quarter iPhone sales, but soft June quarter guidance
Consistent with our March quarter global surveys indicating seasonally softer iPhone 5 sales combined with a stronger mix of legacy iPhone 4S/4 sales, Apple reported iPhone unit sales of 37.4M which was in line with our 37.0M expectation. iPhone's share of smartphones sold at AT&T decreased from 84% in the December quarter to 80% in the March quarter, and iPhone's smartphone share at Verizon decreased from 63% of total smartphone sales in the December quarter to 56% in the March quarter. Consistent with our surveys over the March quarter indicating a stronger mix of lower-priced legacy iPhone 4/4S combined with certain price cuts across the iPhone portfolio later in the March quarter, we calculate iPhone ASPs of $619 (excluding accessories and including deferred revenue) in the March quarter, down from $651 in the December quarter. Based on Apple's weak guidance for the transitional June quarter implying softer iPhone sales and an increased mix of lower-ASP iPhone 4/4S models, we estimate 25M iPhone unit sales during the June quarter, down a steep 33% from March quarter levels and down 48% from peak 2012 December quarter levels. Based on our expectations for a refreshed iPhone near the end of the September quarter, we anticipate a gradual ramp in iPhone sales through Q4/F13 and estimate iPhone unit sales of 29M in the September quarter. We
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5 May 2013 believe Apple could launch a refreshed iPhone 5 in the September quarter along with a more mid-tier-priced competitive iPhone for pre-paid-oriented international markets in early F2014 or ahead of the Chinese New Year holidays.
Apple remains compelling long-term investment, and soft Q3/F2013 guidance represents a buying opportunity
We believe Apple's industry-leading software and its leading hardware expertise will lead to a strong multi-year product cycle for its key products. Based on the after-market price of $450.00 per share, Apple is trading at approximately 6x our F2014 estimate after backing out the $153 in cash per share. Given Apple's aggressive $100B cash return program and with Apple announcing a $17B bond offering to facilitate this program combined with Apple's compelling valuation, strong brand, iOS ecosystem, and installed base it can leverage for new product launches in 2H/C2013, we believe the current share price represents a compelling entry point. Please see our April 23 earnings report titled $100B cash return to investors helps offset weak June quarter guidance for further details on our Apple thesis. We reiterate our BUY rating our $560 price target.
Snapdragon 600 applications processor ramping in volume, but has initia l low gross margin; core MSM margins and market share remain strong
We believe Qualcomm is shipping the MDM 9X15 LTE modem into the Galaxy S4 along with the Snapdragon 600. Since the Snapdragon 600 or APQ8064T is an applications processor-only chipset, sales of this solution are not counted as an MSM. MSMs or Mobile Station Modems represent chipsets with a wireless modem. When Qualcomm reports MSM units, we believe only the MDM 9X15 is counted as an MSM shipping into the Galaxy S4 and not the Snapdragon 600 applications processer. Therefore, the ramping sales of the Snapdragon 600 into the high volume Galaxy S4 contributed to the higher calculated MSM ASPs during the March quarter and are consistent with Qualcomm's guidance for a sequential improvement in MSM ASPs during the June quarter. We anticipate an 8% sequential increase in MSM ASPs during the June quarter. However, we believe the Snapdragon 600 initially has a very poor gross margin versus Qualcomm's overall QCT product portfolio, and the ramping volume of the Snapdragon 600 is contributing to the weaker QCT gross margin outlook despite the increased MSM ASP guidance. We believe Qualcomm was willing to accept a lower gross margin for the Snapdragon 600 in order to win content share in the high volume Galaxy S4 to drive incremental operating income while sacrificing operating and gross margins. We also believe the scale benefits from shipping the Snapdragon 600 in the high volume Galaxy S4
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5 May 2013 that could ship up to 100M units should enable Qualcomm to achieve stronger margins on future application processor only sales to new customers and to new end markets such as applications processor only tablets. Overall, we believe Qualcomm is well positioned to extend its leading 3G and 4G chipset market share during F2013. We also believe an increasing mix of LTE smartphones combined with strong 3G growth in emerging markets should result in stable CDMA device ASPs and solid growth for QTL during F2013. See our Qualcomm note today titled Leading OEM ASP analysis indicates improving QTL ASP trends in H2/F13 for more details on global 3G/4G device ASP rends. Longer term, we also believe Qualcomm is well positioned to post strong earnings growth due to stable royalty rates, strong market share gains for integrated chipsets, and continued strong growth of 3G smartphones in emerging markets to drive an increasing TAM for QCT and QTL. We reiterate our BUY rating and $85 price target, and Qualcomm remains our top large-cap pick for C2013
Weak Mobile Phone division sales result in break-even Q1/13 D&S operating margin despite 27% sequential increase in Lumia sales volumes
Consistent with our belief Nokia had lost feature phone market share during the March quarter due to increased competition from Chinese OEMs and from Samsung's new REX products, Nokia reported Q1/13 Mobile Phones unit sales of 55.8M that were below our 59.7M estimate and well below the consensus estimate of 64.9M. Further, sales of Nokia's profitable higher-end Asha smartphone series declined 46% sequentially from 9.3M to 5.0M units resulting in Mobile Phones ASPs declining to 28.5 from 31.0 in the December quarter. With Nokia management indicating the Mobile Phone division still had channel inventory exiting Q1/13 at levels slightly above target levels and given our expectation for intensifying competition, we anticipate only a modest 1% sequential increase in June quarter Mobile Phone shipments to 56.4M units, or below normal seasonality. While we were impressed with Nokia's recently introduced QWERTY Asha 210 handset, we believe it will take a concerted effort on Nokia's part to quickly introduce new feature phones and Asha products to reverse the currently tough competitive trends and maintain sustained profitability. Nokia's Smart Devices business reported Lumia sales of 5.6M units, above our 5.3M estimate, and Nokia guided Lumia unit volumes should increase sequentially during the June quarter by a greater percentage than the 27% sequential increase in the March quarter. The solid Lumia sales guidance is consistent with our April surveys that indicate gradually improving consumer traction for Lumia smartphones, particularly in mid- and low-tier international smartphone markets with strong sales of the Lumia 620. We also
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5 May 2013 anticipate a strong ramp into the channel for the affordable Lumia 520 and 720 smartphones during the June quarter. However, we anticipate weaker higher-end Lumia sales during the June quarter due to intensifying Western market competition with the launch of the Samsung Galaxy S4. Long term, we believe Windows must capture 15% or more of the smartphone market with Nokia capturing nearly half of the Windows market share in order for Devices and Services to return to sustained profitability with its current cost structure. With Windows capturing less than 5% of the smartphone market in 2012, Nokia and Microsoft face another year of heavy investment in an attempt to drive Windows smartphones to become a viable third ecosystem. Please see our April 18 earnings report titled Solid cost execution and strong NSN results offset weak mobile phone sales for further details on our Nokia thesis. We maintain our HOLD rating and our $3.50 price target.
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GOOGLE/MOTOROLA
Surveys indicate soft RAZR MAXX HD sales at Verizon and overall declining Motorola smartphone sales
Our April wireless store surveys indicated weaker Droid RAZR MAXX HD sales at Verizon versus March quarter levels. With the Droid RAZR MAXX HD no longer a top selling smartphone at Verizon, we believe sales of this smartphone have progressively declined from peak levels in October. Our surveys also indicated soft sales for the Motorola Atrix HD at AT&T and the Motorola RAZR M at Verizon, with sales of these devices adversely impacted by recently launched flagship Android smartphones.
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LG
Improved LTE product portfolio drives improved performance
LG shipped an estimated 15.4M total handsets during the seasonally soft Q1/13. This volume was flat sequentially from the 15.4M units shipped in the seasonally strong Q4/12, and these strong March quarter shipments resulted in LG's global market share increasing sequentially to 3.7% from 3.2%. With an increased focus on smartphones, LG's smartphone sales mix increased from 56% of total units sold in Q4/12 to 67% in the March quarter. Therefore, we estimate LG sold 10.3M smartphones during Q1/13 versus 8.6M in Q4/12. We believe strong sales of LG's high-end Optimus G smartphone, strong Nexus 4 sales, and strong mid- and low-tier Optimus L series smartphone sales drove the improved performance. LG highlighted selling over 1M cumulative Optimus G smartphones in January and highlighted selling over 10M cumulative LTE smartphones in March. Further, with LG announcing the Optimus F series of affordable smartphones, we believe LG is well positioned to grow overall smartphone market share in 2013 through its broad smartphones portfolio. In fact, given LG's improved smartphone product offering and focus on LTE enabled smartphones, we have modeled LG's smartphone market share increasing from 3.6% in 2012 to 4.8% in 2013. Due to increased focus on more profitable smartphones, LG increased its handset industry value share modestly from break-even results over the past four quarters to 1% share of industry profits in Q1/13.
SONY
Improved results due to strong refreshed Xperia series sales
Due to strong global sales of the refreshed Sony Xperia series smartphones including the flagship Xperia Z, we estimate Sony sold 8.9M smartphones during the March quarter versus an estimated 8.7M smartphones during the December quarter. As such, we estimate handset sales increased 4% sequentially to $1.94B in the March quarter. Further, with stronger revenues and strong sales of its flagship Xperia Z smartphone, we estimate Sony's handset business operating margins improved sequentially from -2% in Q4/12 to roughly 1% in Q1/13.
SAMSUNG
Very strong Galaxy S4 launch; solid sales of the reduced-price Galaxy S III
Our April U.S. wireless store surveys indicated strong initial sales in the U.S. for Samsung's flagship Galaxy S4 smartphone at AT&T and Sprint during the last week of April with very strong consumer interest and very positive sales representative reviews. In fact, given the very strong initial sales, consumer interest, and Samsung's marketing budget for the Samsung Galaxy S4 combined with the anticipated soft June quarter for iPhone sales, we believe the Galaxy S4 could emerge as the top selling smartphone during the June quarter. Samsung recently highlighted limited initial supply for the Galaxy S4 given the overwhelming global demand. Our U.S. surveys also indicated solid sales of the reduced price Samsung Galaxy S III at Verizon/AT&T/Sprint as well as at T-Mobile. In addition to strong Galaxy S4 and Galaxy S III sales, our surveys indicated overall strong sales of Samsung's broad smartphone portfolio including mid-tier and low-tier smartphones.
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Solid Q1/13 smartphone sales and well positioned for Q2/13 share gains
We estimate Samsung shipped 115.5M units in Q1/13 versus 115.2M units in Q4/12 and shipped an incredible 69.7M smartphones versus 63.5M in Q4/12 and 44.5M in Q1/12. In fact, due to very strong sales of the Galaxy S III and Galaxy Note II along with its broad portfolio of mid-tier Android smartphones, Samsung cemented its place as the top smartphone OEM during Q1/13. We estimate Samsung's smartphone market share increased from 28.9% in Q4/12 to 33.0% in Q1/13. Due to Samsung's broad portfolio that includes feature phones at lower price points, Samsung strengthened its leading overall handset unit share with 27.5% global share of handsets sold in Q1/13 versus 24.0% in Q4/12. Further, despite very strong growth of affordable Android smartphones from Chinese OEMs, we estimate Samsung maintained its dominant Android smartphone share with roughly 40% of total Android units sold in Q1/13. We anticipate these trends will continue in Q2/13, as we anticipate stronger Samsung smartphone sales versus March quarter levels given strong global demand for the Galaxy S4 combined with Samsung launching a host of new high-, mid- and low-tier smartphones during the quarter. With the Galaxy S III now selling into the channel at roughly $400, the Galaxy S III mini at sub $300 levels, and the Galaxy S4 likely the top selling high-end smartphone during the June quarter, we believe Samsung has a very compelling mid-tier and high-end smartphone lineup to capture material market share and profit share during Q2/2013.
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5 May 2013 estimated 10.3M smartphones in the March quarter and captured 4.9% smartphone unit market share versus 10.8M smartphone units and 4.9% smartphone unit market share in the December quarter.
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1,026
1,153
11% 89%
2,000
6,000
10% 12%
1,500
Millions Of Units
% Smartphone Mix
890
1,119 42%
4,000
633 11%
436
377 184
11% 6%
14%
3,236 2,679
1,000
3,607
3,901
4,193
127
0
2007 2008
139
2009
172
2010
297
2008E
2009E
2010E
2011E
Top 8 OEMs Global Market Share 2007 2008 2009 2010 2011 2012 2013E 2014E
Top 8 OEMs Global Value Share 2007 2008 2009 2010 2011 2012
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Valuation section Apple: Our $560 price target is based on shares trading at roughly 12x our F2014 pro
forma EPS estimate.
Avago: Our $42 price target is based on shares trading at roughly 13x our F2014 pro
forma EPS estimate.
BlackBerry: Our $9 price target is based on our sum-of-parts analysis. HTC: Our NT$240 price target is based on shares trading at roughly 11x our 2014 pro
forma EPS estimate.
Nokia: Our $3.50 price target is based on our sum-of-parts analysis. Peregrine: Our $13 price target is based on shares trading at roughly 17x our 2014 pro
forma EPS estimate.
Qualcomm: Our $85 price target is based on shares trading at roughly 17x our F2014 pro
forma EPS estimate.
RF Micro Devices: Our $7.50 price target is based on shares trading at roughly 11x our
F2015 pro forma EPS estimate.
Skyworks: Our $27 price target is based on shares trading at roughly 10x our F2014 pro
forma EPS estimate.
Spreadtrum: Our $23 price target is based on shares trading at roughly 9x our 2014 pro
forma EPS estimate.
TriQuint: Our $6 price target is based on shares trading at roughly 11x our 2014 pro
forma EPS estimate.
Investment risks
1. 2. 3. 4.
Continued global subscriber growth and recovering emerging market sales Improving global sales mix of smartphones and tablets Healthy handset replacement sales are key variables for our price targets. New law suits or court rulings could change the perceived value of wireless IP portfolios to be higher/lower than we have assumed in our analysis.
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Distribution of Ratings:
Global Stock Ratings (as of 28 March 2013)
BUY: The stock is expected to generate risk-adjusted returns of over 10% during the next 12 months. HOLD: The stock is expected to generate risk-adjusted returns of 0-10% during the next 12 months. SELL: The stock is expected to generate negative risk-adjusted returns during the next 12 months. NOT RATED: Canaccord Genuity does not provide research coverage of the relevant issuer. Risk-adjusted return refers to the expected return in relation to the amount of risk associated with the designated investment or the relevant issuer.
Risk Qualifier:
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