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Mobile Hardware Providers: Business and Revenue Models

Market Segments
Mobile hardware is a very interesting area given the diverse set of players. These players range from:

  • Intellectual Property --- System-on-chip (ARM Holdings, CoWare), Protocols (Qualcomm), Advanced simulation products (Co-Design Automation)
  • Hardware Components -- Microprocessors, Chipsets, DSP, Flash memory, Power Supply Modules (Intel, TI, Motorola, Infineon)
  • Integrated Phone Platforms -- Nokia, Sony/Ericsson, Samsung, Kyocera
  • Handheld PDA Platforms -- Palm, RIM, Handspring, Compaq iPaq, HP Jornada
  • Web Tablets and Appliances -- Sony
  • Wireless laptops --The new models have built-in 802.11b WLAN support along with Intel's Pentium 4M processor (Dell, Sony, Compaq and Toshiba)
  • Enterprise Handheld Platforms -- Symbol Technologies, Intermec
  • Hardware add-ons --  memory cards, modems, GPS devices and cameras

For each market segment the business and revenue model is different making strategy very complex but interesting.

Hardware Revenue Models
The revenue models for hardware/infrastructure vendors include:

Revenue Model
Description
Examples
IP Licensing

Licensing relationships with microprocessor manufacturers ensuring a recurring royalty fee based on number of units sold.
ARM Holdings designs high performance low-cost, power-efficient RISC microprocessors and related technology and software, and sells development systems,
Per Unit Pricing
Microprocessor, Handset, PDA companies make money by selling hardware on a per unit basis. The prices to retailers are based on volumes reflected in various rebate programs.
Intel, Palm, Nokia, Sony, Samsung, Kyocera, Handspring

 

Key metrics to watch

-- Channel Inventory

-- In-house Inventory Turns

 

Palm currently has inventory turns of 10x. Desired level 20x.

 

Palm currently has channel inventory of 6-10 weeks. Desired level 4-6 weeks.

 Platform Pricing
Instead of pricing per unit, companies like Intel or TI can bundle components into a platform and sell this as an integrated bundle.

The margins are better and the switching cost much higher.

Intel, TI, Motorola
Selling related hardware add-ons, peripherals and accessories.
For various hardware manufacturers add-on sales are quite significant.

New Developments
Palm OS 5 - ARM Native Operating System - Features:

  • 2X – 20X Performance Improvement
  • Compatibility for Current Software
  • Enterprise Security
  • Enhanced Wireless Networking
  • Enhanced Multimedia
  • Enhanced Toolset for Enterprise

Hardware Alliances - Handset partnerships have swept through the mobile market in the last year. Last year Sony forged a new handset venture with Ericsson. In August NEC and Matsushita announced a 3G alliance. Also, Fujitsu a few weeks ago formed a 3G handset partnership with French firm Sagem. The most recent one -- Toshiba and Mitsubishi are close to reaching an agreement to jointly develop 3G handsets. In this alliance, Toshiba will be responsible for the wireless network technology for the handsets while Mitsubishi will develop the 3G handset-end. It is not clear, what these partnerships mean in terms of hardware economics? History has not been kind to hardware alliances. A handset development project between Sony and Qualcomm was closed in July 1999, and a similar deal between Philips and Lucent Technologies ended in 1998.

Handsets - Philips offered a sneak peak of its new Bluetooth-enabled handset, the Fisio 820. The Fisio 820 is a Bluetooth-enabled 2.5G GPRS handset that comes with a full-color display, and enhanced multimedia functions (such as MMS compatibility, photos, and ring tones). No word yet on pricing or when the phone will be widely available. For more on this check out this announcement. The challenge is going to be pricing this product as resellers traditionally have discounted handsets so that they become loss leaders to sell air-time. As a result, handset makers have been forced to produce low-cost products or else risk high-end devices that may not find buyers.

Handsets - Sony Ericsson's new products include the p800, a combination PDA and cellular phone with a built-in digital camera. It operates with always-on Internet connectivity through Global Systems for Mobile Communications/GPRS networks, and runs the Symbian operating system, allowing it to support a number of common office applications, including custom applications. From the press release, it seems like this product is being aimed at business users. Looks like marketing is making a big faux pas. I don't know of many business users who like to take pictures using a cell phone. Taking pictures using a cell phone is a Gen Y phenom and would not make a busy executive's priority list of features.

Interesting Factoid - In the first week of its launch (as of 2/5/02), Palm revealed that it sold  13000 i705’s with over 4000 selling directly over their website. The majority of the 13K i705 owners registered for the unlimited plans ($39.99, $49.99) as opposed to Palm’s $19.99 plan which provides subscribers with 100kbs of data per month. The downward sloping price curve --  The i705 device currently retails for $499. Palm's  management expects this price point to come down to the "sweet spot" of approximately $200. Another factor putting pricing pressure -- next generation products to be released in early summer 2002 timeframe built around ARM processors. Currently Palm uses Motorola processors. ARM based design is expected to increase the OS’s performance by 2-20x.
In this Article:

Mobile Hardware is a very diverse area. It ranges from intellectual property to hardware add-ons. For each segment the business and revenue model is often different. This page will give you a comprehensive briefing on Mobile Hardware revenue opportunities available anywhere
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