Initially, the technology to build mobile phones favored large companies that had broad expertise in radio technology, hardware design, software, and manufacturing. In the 1990s, cell phones grew in popularity due to the innovations in cellular networks that were able to handle phone calls in either one area or hand them off to other areas. While most cell phones were toobig and heavy to be carried in the hand, all phones were made for permanent installation in the car and were perceived as a fashion accessory, even a lifestyle testament. Led by Nokia, the industry further evolved towards attractive product designs and more sophisticated user-friendly interfaces.
A smartphone is considered a high-end device that combines the features you wouldfind in a cellphone with the features you would find in a personal digital assistant (PDA) or even a computer, such as to send and receive e-mails and edit Office documents, for example. The first cell phone considered a smartphone was the IBM’s Simon launched in 1993, which incorporated voice and data services into one package. The prominence of smartphones rose with the commercialization ofadvanced third generation (3G) wireless networks in the early 2000’s. Today's models also serve as portable media players, camera phones with high-resolution touchscreens, web browsers, GPS navigation, Wi-Fi and mobile broadband access.
Porter’s five forces industry analysis
The cell phone industry has been characterized by the strong competition and fierce rivalry among itsmajor manufacturers: Apple, RIM, Palm Inc., Nokia, Samsung and HTC. The difficulties companies have to differentiate their product from those of the competition increase the rivalry and competition.
Barriers to new entrants
High capital and resources are required to enter due to requirements of large investments on technology (software and R&D) and marketing. It would cost a minimum of$200 million to develop an operating system and an addition $50 million would be needed would in annual maintenance costs. In order to gain greater brand recognition and gain customers’ loyalty, own-brand cell phones manufacturers see the need to seek for co-marketing support from service operators or to run by they own costly and aggressive marketing campaigns. Research and development represent onaverage the 7.61% of total revenues of the five biggest cell phone manufacturers (See exhibits).
A key success factor to new entrants is to secure their products availability through multiple carriers and multiple retailers. The global recession in 2009 presented a variety of adversities for the entire mobile phone industry. Network operators tightened their inventory levels and became moreselective in their product offerings, raising the bar to new entrants.
Threat of substitutes products
The rise of tablets in the last few years and the increasing availability and low cost of voice over IP (VoIP) communications, pose a threat to smartphones. Small low-cost notebooks pose a threat to smartphones as well.
Bargaining power of suppliers
In the past, the kinds of processorsfound in cell phones could not rival the performance of those found in personal computers and Intel and AMD entrenched themselves in this market. In the last few years, however, mobile processors have vastly increased in capability and the biggest threat to Intel and AMD comes from ARM, based in Cambridge, England. ARM instead of selling physical processors, licenses designs to manufacturers.Licensees include Qualcomm, Samsung, Freescale, and Texas Instruments and ARM-based processors are found in more than 90 percent of the world's cell phones. The increasing number of mobile microchips manufacturers decreases the bargaining power they have over the mobile phone manufacturers.
Suppliers of patented technologies have a considerable power of bargain over cell phones manufactures. For...