dw2

24 October 2008

Smartphones and the recession

Filed under: recession — David Wood @ 1:17 am

“Symbian Smartphone Show – Recession? what recession?” That was the title of the characteristically perceptive summary of this week’s Smartphone Show prepared by analyst Richard Windsor of Nomura Securities.

In his summary, Richard made a series of positive comments about the show:

  • The vision of the Symbian foundation was put forward by all its members to an audience that has certainly grown in numbers compared to last year.
  • By putting Symbian and s60 together with the elimination of UIQ and MOAPs, it is hoped that licensees will have one system upon which to develop phones and applications.
  • At the same time the new structure means that the access to the software will be much more even, giving everyone a better chance at effectively competing.

However, he also noted:

  • The floor was abuzz with the prospect of the growing opportunity for smartphones but seemed oblivious to the possibility that an economic recession could materially dent growth.
  • While the talk is all about growth and the new opportunity, very little was said about the coming recession and the effect that ever increasing hardware specification will have on the ability for smartphones to continue getting cheaper and cheaper.
  • We see a negative impact from two sides:
  • First the fact that consumers have less disposable income to spend on high end devices.
  • Second, the pressure to compete with Apple, whose iPhone volumes has over taken RIM, is causing more technology to be crammed into phones earlier.
  • This has the effect of increasing the cost to build smartphones which means that price declines to consumers will slow or stop entirely.

So, is there any possible justification for paying so little attention to the likely onset of economic hard times?

Here’s one argument to consider. The Symbian Foundation is about, not the next ten months, but the next ten years. The general buzz at the show derives from expectation of a potentially huge long-term payback, rather than any evaluation of short-term rewards. Just as the original vision of Symbian, on its formation in 1998, contemplated up to ten years into the future, the creation of the Symbian Foundation likewise has an eye on market evolution up to 2018. Any recession between now and then is a lesser effect.

Well, I’m sympathetic to that view. However, it gives us no reason to breezily overlook the likely pain and disruption caused to the smartphone industry by an economic downturn.

After all, I vividly remember the distress inside Symbian during the crash of the dot com bubble. During that time, smartphone phone projects were being cancelled thick and fast – even when the projects looked to be full of real promise. These projects were cancelled on account of lack of finances to back more speculative developments. Development resources in our customers (and also in our customers’ customers) became focused instead on “safe bets” rather than on innovative high-risk high-reward projects. Symbian faced a real crisis. It took several long years to put that time behind us.

Could the same happen again? Perhaps. But I see several key differences:

  • This time, it will be the Symbian projects that are viewed as the safe bets: the Symbian software system is much more stable and proven than before
  • This time, many of the Symbian projects will be the lower costs ones – because of reduced needs to integrate large swathes of new functionality (beyond that already provided in the core offering), and also because of the lower hardware requirements of the high-performance Symbian software
  • This time, consumers are already familiar with smartphone technology, and are increasingly enamoured with it, rather than this technology only appealing to a narrow segment of the population.

I hope this doesn’t make me look complacent. Believe me, I’m not. I know it’s going to be hard, to turn the above prognosis into reality. But the enthusiasm and skills of the Symbian ecosystem (as manifest at the show) give me grounds for optimism.

In short, consumers may tend to prefer lower-cost smartphones, and this will benefit Symbian. Even though the Symbian phones will be comparatively inexpensive, they will deliver enough features (and a sufficiently good user experience) to win over end-users.

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