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DRB Advisory34,Ezra street, 2nd Floor, Kolkata-700001www.drbadvisory.com

Rohit BankaPromoter and FounderP: 9999631495E: rohit@drbadvisory.com

Created By:

Smartphone IndustryAnalysis

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2 SMARTPHONE INDUSTRY ANALYSIS:

22 Years of Smartphones:

1994

IBM Simon LaunchFirst Smartphone ever to feature software application supporting 2g signals.Approx. 50,000 phones were sold.

2000

Sony Ericson R380 LaunchFirst phone ever marketed using the term “Smartphone” & also first device to use Symbian OS.

The Palm TreoPalm OS Version 4.0 was launched with Bluetooth emulator as its main feature. First 3G network was introduced in 2001 in Japan But it was not widely adopted before 2005.

First Android Phone LaunchFirst Smartphone to run Linux Based Android Operating System was HTC G1.

Apple Entry(IOs)First commercial smartphone to use finger input as its main means of interaction, instead of a stylus, keyboard or keypad.

2002 2007 2008

2010

Windows OS EntryWindows Phone 7 was first windows phone released on 8 Oct, 2010 in U.S.

2011

Fingerprint ScannerMotorola Atrix launched in 2011 which had fingerprint scanner. But fingerprint scanner became popular in 2013 when apple launched IPhone 5s.

Edge SmartphoneSamsung launched first edge smartphone which had curved screen.

2013 2015 2015

Samsung Galaxy Gear (Smart watch) LaunchSamsung officially launched Samsung Galaxy Gear on Sept. 04, 2013.

Tizen Operating SystemSamsung launched first smartphone to run Tizen Operating System.

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2013 2014 2015E 2016 ( P ) 2017 ( P ) 2018 ( P )

303 328 340 346 351 351

266299 317 327 336 339

88%91% 93% 95% 96% 97%

Smartphone sales as a %ge of Mobile sales Global Smartphone Sales

Global Mobile Phone Sales

2 0 1 3 2 0 1 4 2 0 1 5 E 2 0 1 6 (P ) 2 0 1 7 (P ) 2 0 1 8 (P )

1.83 1.95 2.05 2.14 2.23 2.29

1.03 1.24 1.43 1.59 1.75 1.8956%64%

70%74%

78% 83%

Global mobilephone shipments Smartphone Shipments%ge of mobile phones are smartphones

SMARTPHONE INDUSTRY ANALYSIS:Global Mobile & Smartphones Supply (By Volume in Billion)…

Global Mobile & Smartphones Sales (By Value in $ Billion)…

• Global Mobile Phone(smartphone & feature phones) supply is expected to grow at CAGR 3% from 2015 to 2018.

• Global Smartphone supply is expected to grow at CAGR 7% from 2015 to 2018.

• Global Mobile Phone(smartphone & feature phones) & smartphone sales are expected to grow at CAGR 0.8% & 1.7% respectively from 2015 to 2018.

• Smartphones will account for 97% of total mobile phone sales by value in 2018.

93% 98% 97% 93% 88%80%

73%60%

49%

1% 3% 7% 12%20% 25%

35%41%

0% 0% 0% 2% 5% 10%

0%

20%

40%

60%

80%

100%

120%

2000 2002 2004 2006 2008 2010 2012 2014 2016(P)2g 3g 4g

Evolution of Signal Technologies…

0.57

0.230.17

0.12 0.14

0.69

0.250.19

0.13 0.16

0.79

0.270.19

0.150.19

0.9

0.280.2

0.160.22

0.97

0.280.2 0.18

0.26

0

0.2

0.4

0.6

0.8

1

1.2

Asia Pacific Europe North America Latin America Middle East & Africa

2014 2015E 2016(P) 2017(P) 2018(P)

Region wise supply of smartphones(by volume in Billions)…Highest Selling Region

Topmost Growing Region

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4 SMARTPHONE INDUSTRY ANALYSIS:Market Share of Major Players

69.3%

16.6%

3.1%4.9%

6.1%

79.8%

12.9% 3.4%2.8% 1.2%

84.8%

11.6%

2.5%0.5% 0.7%

82.8%

13.9% 2.6%

0.3% 0.4%0.0%

10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%90.0%

Android IOS Windows Phone

Blackberry OS

Others

2012 2013 2014 2015

Market Share of Operating System

32%

17%

4%1%

6%

40%32%

13%

4% 2%6%

44%

25%

12%7% 5%

8%

44%

21%

14%9%

6% 5%

46%

0%

10%

20%

30%

40%

50%

Samsung Apple Huawei Xiaomi Lenovo Others

2012 2013 2014 2015

Top Smartphone Markets in World…

Asia Pacific

North America

Latin America

Europe

Middle East & Africa

13.6%

Population(In billion) GNI Per Capita(as per PPP model in $)Total Shipments(in billions) Average Price(in $)

2014 2017(P)

0.17 0.2

531 567

0.5 NA

53350 NA

2014 2017(P)

0.12 0.13

288 246

0.5 NA

14053 NA

2014 2017(P)

0.23 0.28

419 259

0.7 NA

13580 NA

2014 2017(P)

0.57 0.9

262 215

4.2 NA

11872 NA2014 2017(P)

0.14 0.16

339 230

0.4 NA

11834 NA

Key Findings:• Asia Pacific is the largest market for smartphones. In spite of being the largest market only13.6 % of the total population own

a smartphone in this region. The average price of smartphones is also lowest in this region so, low cost smartphone vendors like Xiaomi, Huawei, Lenovo take a greater market share.

• 39.2% of total population of the Middle East & Africa own a smartphone and is expected to show highest CAGR of 13.38%. Likes of Samsung, Motorola, Sony and other low to average cost smartphone vendors occupy a higher market share.

• GNI per capita is highest in North America. So, it is good market for high cost smartphone vendors like Apple.

31.0%31.9

%

22.8%

%ge of total population with a smartphone

39.2%

• Samsung is loosing its market share to Chinese manufacturing companies like Xiaomi, Huawei, Lenovo which are selling Android Smartphones at relatively cheaper prices.

Apple is regaining it’s market share

IOS is regaining it’s market share

Android lost it’s market share for first time after launch.

91% of others run Android O.S.

* NA: Not Available

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5 SMARTPHONE INDUSTRY ANALYSIS:

China, 301.2

USA, 137.5UK, 35.5JAPAN,

35.2

BRAZIL, 28.9

INDIA, 27.8

OTHERS, 352.5

2013

China, 457.9

USA, 183

UK, 47.5JAPAN,

37.7BRAZIL,

66.3

INDIA, 155.6

OTHERS, 568.1

2017

Top 6 Countries by Market Share

33%

15%4%4%3%3%

38%30%

12%

3%3%10%

38%

4%

• Supply of Smartphones to Indian Market is expected to grow at the highest in the world (41% CAGR). India is expected to overtake the U.S. market by 2018 in number of smartphone shipments.

• Developing economies will witness higher growth rate in smartphone supply due to increased shipments of cheaper smartphones.

• Shipments of smartphones to China is currently the highest in the world and its share is expected to decrease going forward.

80%

58% 53%40% 44%

62%

47%40% 44%

37%36%23%

36%25%

19%22% 17%

33%20%

12%20% 15%

25%14% 10%15% 9%

19%8% 6%

0%

20%

40%

60%

80%

100%

India Turkey Indonesia Brazil Russia

2013 2014 2015E 2016(P) 2017(P) 2018(P)

Top 5 Countries witnessing the highest growth in smartphone demand

• Highest growth in smartphone demand is seen in the Indian Market over the past three years.• Indonesia & Brazil are other high growing smartphone markets.

Global Total Shipments1.03Bn Global Total Shipments1.75BnCAGR 11%

News that became headlines

• Apple surpassed Samsung in sales by volume for the first time in Q4, 2014. Apple sales grew to 74.8 million in Q4, 2014 from 50.2 million in same quarter of last year. Apple’s & Samsung market share in this quarter were 20.4% & 19.9% respectively.

• Lenovo acquired Motorola in Oct, 2014 and it showed 47.6% growth after this acquisition. Lenovo accounted for 6.6% market share in Q4, 2014.

• Xiaomi showed largest jump to triple its sales compared to a year ago. Xiaomi sold 61.1 million smartphones in 2014 up from 18.7 million in 2013. In terms of revenues, Xiaomi showed 135% hike.

• In Q1 2015, Apple & Samsung accounted for 107% of global operating profit as other vendor’s operating profit was negative. Apple & Samsung took 92% & 15% share of global operating profit respectively.

Figures in million units…

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0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

India USA China Germany Japan South Korea

Australia Russia Brazil

24% 27%

10%

44%

4%

46%

31%

19%

38%

5%

21%

17%

5%

11%

10%

8%

44%

15%

21%

51%

33%

49%

5%

11%8%

17%

4%

4%7% 6%4%6% 3%

2%

14%

11%

9% 14%

2%

13%

6%5%

6%

3%3%

10%

34%

11%

42%

14% 17%

1%11%

58%

7%

Samsung Motorola Micromax Lava Intex Lenovo Apple Sony Nokia HTC

Xiaomi Huawei LG Sharp Fujitsu Pantech Telstra Microsoft Others

SMARTPHONE INDUSTRY ANALYSIS:Market Share of Smartphone Vendors in different countries…

• Samsung & Apple are the most popular selling smartphone vendors in the world.• Huawei & Xiaomi are world’s 3rd & 4th largest smartphone manufacturers, respectively. But, Huawei & Xiaomi

do not hold major market share in any country except China.• In every country, domestic Smartphone Manufacturers are competing with Samsung, like in India, we have

Micromax Intex & lava, In Australia there is Telstra, In Japan there is Fujitsu & Pantech in South Korea.

Smartphone Vendors & their Location…

Company Name

Country

Samsung South Korea

Apple USA

Xiaomi China

Huawei China

Lenovo China

Microsoft USA

CompanyName

Country

Micromax India

Lava India

Intex India

Sony Japan

HTC Taiwan

LG South Korea

CompanyName

Country

Sharp Japan

Fujitsu Japan

Telstra Australia

Pantech South Korea

Motorola China

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7 SMARTPHONE INDUSTRY ANALYSIS:Case Study

Google - Motorola Lenovo-Motorola Microsoft - Nokia

qGoogle acquired Motorola Mobility for $12.5 billion in 2012. Google acquired MMI for $40.0 per share in cash.

qMotorola Mobility revenues for FY 2011 were $8,203 million. Sales multiple for the deal was 1.52.

qGoogle’s strategic rationale for the acquisition was Motorola’s rich Patent Portfolio. Google paid $4 Billion out of $12.5 billions for MMI’s rich patent portfolio.

qGoogle received 24,500 patents from MMI. Out of which 17,000 were issued patents and 7,500 were applications.

qMotorola sales grew 3% in first quarter after this acquisition.

qGoogle sold Motorola Mobility to Chinese Manufacturer Lenovo for $3 billion in 2014 and retained its patent portfolio.

q Lenovo bought Motorola Mobility from Google for $3 billion in Oct, 2014.

q Lenovo paid Google $660 million in cash & new issued shares of Lenovo stock of worth $750 million. Remaining $1.5 billion will be paid to Google by Lenovo in the form of a 3 year promissory note.

q Google still owns MMI’s Patent Portfolio, Motorola received a license to this patent portfolio and other intellectual property.

q Lenovo’s strategic rationale behind this acquisition was that Lenovo wanted to capture smartphone market share to be the world’s 3rd largest smartphone manufacturer in 2014.

q Motorola under Lenovo recorded a 118% growth in Q4, 2014.

q Microsoft acquired Nokia’s Mobile Phones and Smart Devices business units including Nokia’s design team and its operations on 21st April, 2014 for $7.2 billion in cash.

q The direct control will mean better integration of handsets with windows. Apple is the best example of this approach to the mobile phone industry. This approach made Microsoft to buy Nokia.

q The acquisition of Nokia boosted the company’s revenues 25% to $23.2 bn in 3 months after acquisition.However, company’s quarterly profit declined 13% to $4.5 billion due to integrations & restructuring expenses of about $1.1 billion.

q 8500 design patents were also acquired by Microsoft.

Profitability & Valuation of Smartphone Manufacturing Companies…

Notes:• The comparable company’s data is taken for the whole business of the companies.• The comparable companies data is based on Trailing Twelve Month(TTM) for the period Oct 2014 to Sept 2015..• Market-cap is calculated as the product of closing share price from bloomberg dated 27th Dec 2015 and number of share outstanding.• Debt includes short term borrowing & long term borrowings.

Mean(Excluding Outliers) 1.1 11.3 13

Median(Excluding Outliers) 90.6 11.6 16

q Advertisement & material costs are major part of operating expenses in smartphone industry. Apple has the benefit of pricing andlower spends on advertisements as a percentage of revenues, that’s why Apple accounts for major part of global operating profitfrom smartphone business.

q Mostly companies other than Apple & Samsung primarily carry negative operating profit margin. Operating profit margin shown inTTM is for company’s whole business.

Figures in USD billion

Revenues Gross Profit EBIT PAT Market Cap Debt Cash EV Sales x EBIT x P/E ratio

Apple 2,33.7 93.6 72.5 53.4 605.5 53.5 21.1 637.9 2.7 8.8 11

Samsung 190.4 74.0 25.5 20.3 134.2 21.1 21.0 134.2 0.7 5.3 7

Lenovo 48.3 7.1 -.412 -.268 11.7 8.3 4.9 15.1 0.3 -36.6

Nokia 13.8 5.9 1.5 1.1 26.3 2.6 4.1 24.8 1.8 17.0 24

HTC 4.4 .856 -.348 -.356 60.5 .809 1.3 59.9 13.7 -172.4

Sony 58.7 14.5 2.3 1.5 31.1 9.9 8.4 32.5 0.6 14.4 21

LG(*July 2014 -June 2015)

25.6 4.9 -.472 -.274 8.7 6.3 .895 14.1 0.5 -29.8

Huawei(*FY 2014)

44.5 19.7 5.1 4.3 8.9 4.4 12.0 1.2 0.0 0.2 2

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Future of Smartphones…Key Features to Expect in Future Smartphones:

Augmented Reality: Using “augmented reality” feature, user can get information without giving input by typing or voice command. User can get information using his smartphone’s camera. User just need to point the camera on anything and can get information about it.

Flexible Screens:Many smartphone users like to watch favourite movies & play games which they don’t fully enjoy because of small screen size. Large screen smartphones are not pocketable. So, there is scope for foldable paper thin screen smartphones.

In-Built Projector:Users may not like large screen size smartphones. Smartphones may come up with in built projector. A WVGA projector is able to project up to 50 inches in size. With this feature future smartphones can actually be turned into an interactive gaming consoles without a need of TV screen.

Seamless Voice Control:Voice control has been receiving much attention since Siri made headlines. But instead of recognizing commands via sound waves, Siri interprets diction & syntax in a similar fashion to how we recognize speech. Such Natural Language User Interfaces prove to be more effective & accurate. Seamless Voice Control is a goal to achieve for smartphone vendors.

3D Screen & Holograms:Smartphones may have already reached the peak of their screen resolution which actually provides a resolution that is sharper than what the human eye can perceive.Still users want more. So, mobile companies are now moving from 2D to 3D screens for future smartphones.

SMARTPHONE INDUSTRY ANALYSIS:How Smartphones have drastically changed in just a year…

3D Touch:The 3D touch technology allowed users to assign various shortcuts on their iPhones just by applying different amount of pressure on touchscreen.

Optical Image Stabilization:Implementation of OIS not only results in blur-free images, it also results in better low-light photography.

Very High Resolution DisplayLG G3 was the first phone to be launched sporting a quad-HD or a 2K display back in 2014. But the year 2015 was the year of phones with high-resolution display.

USB Type CUSB Type-C is the first USB standard to come with reversible interface. USB Type- C can support speed up to 10 Gbps and has much higher power up to 20V(100W) and 5A.

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Sources:http://www.informationweek.com/mobile/mobile-applications/smartphone-os-a-22-year-history/d/d-id/1319495http://www.telegraph.co.uk/technology/mobile-phones/11037225/20-years-of-the-smartphone-an-evolution-in-pictures.html?frame=3007937http://www.statista.com/topics/840/smartphones/http://www.gsmamobileeconomy.com/GSMA_Global_Mobile_Economy_Report_2015.pdfhttp://www.idc.com/getdoc.jsp?containerId=prUS25804315http://www.businessinsider.in/THE-GLOBAL-SMARTPHONE-MARKET-REPORT-Forecasts-vendor-and-platform-wars-and-the-new-high-growth-markets/articleshow/47506519.cmshttp://www.forbes.com/sites/ciocentral/2012/12/18/revolution-3-big-changes-coming-to-smartphones/http://www.researchgate.net/publication/236669025_Impact_of_Smartphone's_on_Societyhttp://www.ericsson.com/res/docs/2015/ericsson-mobility-report-june-2015-rina-appendices.pdfhttp://www.lenovo.com/transactions/pdf/CCS-Insight-Smartphone-Market-Analysis-Full-Report-07-2014.pdfhttps://www.strategyanalytics.com/strategy-analytics/news/strategy-analytics-press-releases/strategy-analytics-press-release/2015/07/01/india-will-overtake-us-to-become-world's-second-largest-smartphone-market-by-2017#.VnQiJRV97Dchttp://www.androidcentral.com/huawei-surpasses-microsoft-become-third-largest-smartphone-vendor-world http://databank.worldbank.org/data/download/GNIPC.pdf https://www.comscore.com/Insights/Market-Rankings/comScore-Reports-July-2015-US-Smartphone-Subscriber-Market-Sharehttp://www.mtsgsm.com/blog/file.axd?file=2015%2f8%2fSmartphone+Market++Report+Q2_2015_FIN.pdfhttp://www.slideshare.net/AbubakrElsayed/global-marketing-plan-xiaomi-brazil-group5final http://dazeinfo.com/2015/04/30/worldwide-smartphone-shipments-q1-2015-samsung-is-back-to-business/http://www.theguardian.com/commentisfree/2015/jan/03/mobile-phones-have-changed-world-for-better-or-worsehttp://www.androidauthority.com/state-smartphone-industry-2014-527300/http://www.euromonitor.com/mobile-phoneshttps://www.linux.com/community/blogs/132-mobile/838267-mobile-phone-and-smart-phone-market-global-industry-analysis-and-forecast-2015-2021http://www.medianama.com/2015/05/223-samsung-q1-fy15-earnings/http://www.hongkiat.com/blog/future-smartphone-features/

Disclaimer: The information contained herein is based on secondary research of general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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