iPhone to face tough times in Europe: analyst

Stan Beer
Thursday, 13 September 2007 03:57

Your IT - Mobility

The Apple iPhone is likely to face much tougher competition when it is released in Europe which is why the company slashed its prices ahead of the holiday shopping season, according to a senior analyst at a specialist telecoms research group.

Joss Gillet, senior analyst at UK-based industry research group Ovum, predicts that the iPhone is likely to butt heads with a barrage of extremely strong competitors with better sales and distribution models when it hits the European market.

“Seventy four days to sell one million devices through an exclusive deal with AT&T is impressive for the new entrant to the telecom industry. The iPhone is undoubtedly a very exciting product which is disrupting the way manufacturers handle handset usability,” said Gillet in a research note.

“However, Apple is planning to introduce its hero product in Europe during the most competitive period of the year and we expect Apple to face a strong portfolio of rival devices from established handset manufacturers:

- Nokia has already announced plans to introduce an iPhone challenger following the launch of its OVI platform. Nokia's strength in mass market distribution could put pressure on Apple's exclusivity and revenue share models

- Sony Ericsson is not likely to stay quiet as it owns the optimized music market in Europe. In terms of usability, Sony Ericsson has designed a very user-friendly User Interface which has always been a strong competitive advantage. Plus, Sony Ericsson's brand awareness is a strong competitive advantage against Apple's brand appeal, which is still to be proven in most markets in Europe.

- LG has already launched its Prada touchscreen device which might be brought down the tiers.

- Samsung is very capable of quick turnarounds as we have seen when it launched devices such as the Ultra Edition to tackle the Motorola's thin portfolio, its E900 to tackle the LG Chocolate, or even its Silver finishes to tackle LG's Shine handset range. Hence, no doubts we will see the introduction of a thin Samsung iPhone challenger soon.

- Motorola is one of the best examples when looking at disruptive devices. From the Startac to the Razr V3, the American company has a good history in inventing innovative use cases. Following on the recent turmoil the company is going through, we can expect Motorola to turnaround and compete strongly in the iPhone segment.”

Gillet predicts the iPhone will come back down to earth in the eyes of consumers early next year as tough competitors leverage their much more established supply chain infrastructures.

Gillet said: “We also expect that iPhone hype will slow in early 2008 as Apple faces strong commercial pressure in Europe:

- top manufacturers have better distribution models and can target the mass market across all countries. In contrast, Apple is still securing its first relationships with operators and is initially expected to introduce its device in key markets only.

- top manufacturers have greater pricing 'flexibility' and access to the prepay market through subsidies and economies of scale

- top manufacturers have greater marketing capabilities across all markets and co-marketing with operators and distributors is a well-established practice

- top manufacturers are already working on higher technology standards such as 5 Megapixel cameras, HSDPA chipsets, 30 frames per second displays, over-the-air downloads, external memory, and so on. Devices such as the N95, Z8, G600 and K810/K850 are subsidized and widely available.”

Gillet also raised the possibility of uncertainty in the Apple camp over the iPhone's entry into Europe, demonstrated by the surprise price cut.

“Ultimately, one can argue that Steve Jobs is aware of the challenges ahead, and that Apple's target is to own only one percent of the total market and make it a profitable exercise. However, the recent sudden sharp price drop did not appear to be a pro-active strategic decision: encouraging investors to question the device's growth potential and upsetting early adopters.”