Should Motorola Embrace 100% the Linux Operating System (OS) For Smartphones

SHOULD MOTOROLA EMBRACE 100% THE LINUX OPERATING SYSTEM (OS) FOR SMARTPHONES? 1. Introduction In a period when the market for mobile devices is changing and moving towards convergence of multiple products into one single device, it is time for the big players in all related industries to reconsider their strategy to capture more of the value that convergence will create. Motorola, the second largest manufacturer of mobile handsets, recently adopted a new open source OS in a completely new market, such as the one of smartphones in China, and the question is: should they strongly adopt the new standard in all of the new products and in all of the markets? We believe that the answer is yes, and in this paper we will explain why. 2. An Overview of Motorola Motorola was originally founded as the Galvin Manufacturing Corporation in 1928 by Paul V. Galvin and his brother Joseph E. Galvin in Chicago, Illinois. Galvin Manufacturing Corporation's first product was a battery eliminator, a device that allows battery-powered radios to run on standard household electric current. In the 1930’s the company introduced one of the first commercially successful car radios and a single-frequency mobile radio receiver for police broadcasts. The company had just entered into the new field of mobile radio communications with net annual sales of $287,256. In the 1940’s, after Galvin Manufacturing Corporation becomes Motorola and offers first public stock, and into the 1950’s Motorola kept growing with new technological and commercial innovations in radio devices, television and personal pagers. By that time Motorola’s net sales were $177.10 million and the company had become one of the world’s largest manufacturers of semiconductors. In the 1960’s the company expanded internationally to more than 14 countries in Europe, Asia, and Latin America and ventured into semiconductors for the automobile industry. In the 1970’s, Motorola demonstrates a design for the DynaTAC (Dynamic Adaptive Total Area Coverage) the first commercial portable radio telephone, which used the cellular radio technology. In the next decade Motorola’s revenues grew from: $796.42 million up to $3.10 billion. Entering the two decades from 1980 to 2000, Motorola experienced explosive growth. Electronic components for the automotive industry become the first major market for Motorola microprocessors. Motorola introduces the first true 32-bit microprocessor. It contains 200,000 transistors on a threeeighths-inch square chip. Motorola's first DynaTAC cellular system begins commercial operation. It had, over 15 years, devoted $100 million to the development of cellular technology. The world's first commercial handheld cellular phone, the Motorola DynaTAC phone, became available to consumers in 1984. Growth was also fueled further by the introduction of the Bravo numeric pager, which became the world's best-selling pager. Later, in the 1990’s, the company introduced the world's first two-way pager, which allowed users to receive text messages and e-mail and reply with standard responses. Sales had reached the mark of $10 billion, when Motorola launched the 3.1 ounce StarTAC®, which at the time, was the world's smallest and lightest cellular phone, and developed the world’s commercial digital radio system that integrates paging, data communications, voice dispatch and wireless telephone in a single radio network and a single handset. After the stock market bubble burst in 2000, Motorola had several years of losses, downsizing and restructuring charges. Motorola and General Instrument Corporation had merged their businesses to provide integrated video, voice and data networking for cable, Internet and high-speed data services. Despite the slowdown in growth and company losses, Motorola managed to keep innovating in the telecommunications industry by focusing on handset manufacturing. In 2001, it introduced its first metal mobile phone, the Motorola v60 phone, with anodized aluminum housings, Internet access, text messaging capabilities and voice-activated dialing. A year later, it became available in all three cellular technologies — GSM, TDMA and CDMA — and quickly became a worldwide best seller. In 2002, Motorola launched its first 3G nationwide voice and date network using Code Division Multiple Access 1X (CDMA 1X) technology with KDDI, Japan's second largest wireless operator, enabling Internet access at speeds more than double that of existing networks. At this point, the company had developed its first single-chip Global Positioning System (GPS) receiver solution. This breakthrough technology enabled designers to add accurate location-sensing features to portable consumer electronics products. Motorola launched in 2003, the A760 phone, which was the world's first handset combining a Linux operating system and Java technology with full PDA functionality. Motorola had just begun fighting a new battle in the new smartphone arena. 3. The Smartphones Market In the last two years we have been seeing the integration of between mobile phones and PDAs in a single multipurpose device, the smartphone (see Figure 1). A smartphone is a mobile phone with “smart” capabilities or, in other words, a voice-centric device that includes basic data functionalities like address book, calendar, notepads, and more advanced ones, like e-mail, web browsing, etc. Latest devices include also entertainment features such as digital music players and digital cameras. The trends of increasing complexity of device features can be clearly seen in the s curves of figure 1. The first smartphone was launched in 1996 by Nokia (the Nokia 9000), but the year when he market began really taking off was 2004. In this year many new models were launched and the number of new model announcement made it clear that the market was booming. In 2004 the market almost doubled every quarter (from 70% to 80% increase every quarter) reaching 10.7 million units shipped in Q1 2005 (Exhibit 1c). Considering that the mobile phone market counts up to 500 million units sold per year, and the fact that in the future it’s very likely that most of the people, who currently own a standard mobile device, will migrate to a smartphone, some estimate that forecasts for the global smartphone market will exceed 50 million units by the end of 2005, and account for about 25% of the mobile devices marketed by 2008 (Exhibit 5). Given the origin of the device and its evolution, we support the thesis of convergence of different players into the same market. We can list, therefore, as competitors, mobile phones manufacturers like Nokia, Sony Ericsson, Fujitsu, and Motorola, as well as PDA manufacturers like RIM (Blackberry producers) and PalmOne (Please refer to Exhibit 1a, 1b and 1c for sales and the relative market shares). Nokia’s excellent performance (66.7% market share with leadership position in EMEA - Europe, the Middle East, Africa - Asia/Pacific and Latin America) is primarily due to the success of its new highend products (6630, 6670), besides its highly recognized brand name in the market as a leader mobile phone producer (Exhibit 3 and 4). In fact, most of the smartphone consumers, buy a smartphone only after having owned a basic mobile phone first, therefore it’s not surprising that the world wide mobile phone leader has soon become the number one supplier of smartphones. Nokia will further expand its product portfolio in 2005 with more “phone like” smartphones (already announced the new model 3230 and the new product family 668x, see Exhibit 2a). Motorola gained the second position in Smartphone shipments in the fourth quarter of 2004 (10.2% market share) due in large part to its already existing leadership position in the U.S. and the success of its Microsoft-based (the old MP200 and the new MP220) and Symbian-based smartphones (the new A1000) in the EMEA region (Exhibit 2b). Besides, the company had been able of taking advantage of the increased demand for Linux products in China and expanded its product portfolio with two new models (A780 and E680 smartphones). We will cover the smartphone’s Operative Systems (OS) in the next section. It is interesting to note that, Motorola has currently in its product range smartphones based on three different OS: Microsoft, Symbian and Linux. Recent news stated that Motorola discontinued the MP200 models based on Microsoft. Therefore, that leaves it currently with two different OS. Fujitsu, Sony Ericsson and PalmOne are following the leader together with other minor manufacturers. None of them got over 5% market shares in the fourth quarter of 2004 and there are several reasons for this. Fujitsu is currently selling only in Japan, and at the moment, there are no plans of expanding sales outside its home country. Sony Ericsson is focusing more on expanding its consumer mobile phone portfolio than on developing its P9xx smartphone series (Exhibit 2d). Finally, PalmOne hasn’t been fast enough to market its new product (Treo 650 launched in the fourth quarter of 2004 - Exhibit 2c). Basically, in one way or another, all these players were not able to capture value from the opportunities that the new market, that was just being created, brought with it. 4. OS in Smartphones Operative Systems are fundamental components of smartphones. The OS is the lower layer of software that controls and manages all the basic circuits of the smart-phone. It is the platform upon which all applications work. The fundamental task of the OS for smartphones is the same, as that of an OS for a desktop or laptop. OS for smartphones, however, have been further developed, specially, to better serve smartphones peculiarities. In particular, smartphone OS should:
be SMALL and occupy few megabytes, and do not use too much of the limited storage space;
CONSUME LITTLE POWER to allow long battery life (batteries for wireless devices can last between 2 and 10 hours of talk time only)
SUPPORT HIGH DEGREE OF SWITCHING from one program to the other
support both voice and data communications in all the possible forms
be able to synchronize with other devices Because smartphones were born from the convergence of cell phones and PDAs, the OS that are currently available in the market are evolutions of OS previously used for those products. The most relevant ones are: Symbian (Nokia’s product for cell phones), Palm OS (Palm’s product for PDAs), Windows Mobile (Microsoft’s product for PDAs) and Linux (newer version of Linux for smartphones). Exhibit 1a and 1b show the market shares of each player as for Q4 2004. The leading operative system in the smartphone market is Symbian, which is developed by the Symbian Operating System Consortium and was installed on 80% of the smartphones shipped in Q4 2004 (Exhibit 6). Symbian consortium was created by Nokia in June 1998 to provide a private open set of standards for the mobile phone industry, minimizing Microsoft’s power and influence on the industry. Initially Nokia hold a 32.2% stake in the consortium, but recently, after Motorola stepped out, increased its stake over 63% (Exhibit 7) becoming the player with the highest stake and the highest power in the consortium. Besides being Symbian’s largest shareholder, Nokia is also its main customer, and provides, therefore, the most important source of revenues from license fees (today around $5.7 per unit). Doubts were raised in the business community, on the ability of Nokia, to maintain Symbian independent, so that it can still appeal to other phone manufacturers instead of becoming a Nokia property. Palm OS has been the second most common OS in smartphones until the fourth quarter of 2004, when Microsoft overtook Palm OS, pushing it back to the 3rd position with 4.6% market share. Palm OS was created by Palm Source, a spin-off from Palm, for PalmOne PDAs (last version released in 2002, Palm OS 5). It supports a faster processor to manage the complex functionality of smartphones. However, Palm was unable to develop a new product fast enough (Treo 650 is the only new product and it was launched during Q4 2004). The latter caused a decline in market share of Palm OS, as 97% of Palm OS shipments, are due exclusively to PalmOne devices. Microsoft is a strong entrant in the market and represents a clear threat to Nokia as well. Microsoft market share in smartphones OS almost doubled in 3 quarters of 2004 from 5.7% to 9.7%. This exceptional performance was mainly driven by the success of new Motorola products that featured Windows Mobile as OS. However, it is unlikely that this growth will continue in the near future because Motorola, which accounted for over 50% decide to discontinue the production of Microsoft based smart-phones. The decline will probably be limited by the new licensees that Microsoft is expected to sign in 2005 with other handset manufacturers. Windows Mobile 2003 is based on Windows CE 4.2 and has been upgraded to support built-in wireless communication tools (WiFi and Bluetooth). It was also update to Figure 2 manage all the new multimedia functionalities required to a smartphone. Linux OS increased its penetration in the smartphone market and has in Q4 2004 a 4.4% market share, only 2 percentage points below Palm. Linux adoption is mainly due to Motorola’s success in the Chinese market. In the next section we provide an overview of the Linux OS and before moving on, it might be useful to summarize advantages and disadvantages of the three main OS (see exhibit 9 for comparison of technical features). Table 1 Advantages Disadvantages – Manufacturers diversity – Strong companies behind the consortium (Nokia, Sony Ericsson, Siemens, …) – Strong platform for communication devices – Strong presence in the consumer market – Product differentiation due to different user interfaces – Limited market presence in the US Palm OS 5 – Market leader in PDAs – Recognized easy of use of Palm applications – Possibility of designing different devices with different prices – Large community of 260,000 application developers – ARM-compliant processor that allows high speed – Not perfectly backward compatible (emulation tools to run old applications) Windows Mobile 2003 – Familiar experience o the user (Affinity with Microsoft Office, Outlook, …) – Consistency with other Microsoft 32-bit OS (Windows NT, 2000 and XP) – 6 million developers worldwide with strong development tools to support them – Plenty of management tools available – More expensive than Palm OS Symbian – Need to source the user interface in addition to the OS – Limited availability of enterprise applications – Little consistency among different implementations – Limited presence in low-end consumer market – Limited space for differentiation of devices 5. Linux OS Linus Torvalds along with other programmers first developed Linux in the early 1990’s. Linux is a Unixlike, Posix-compliant operating system. It is distributed under the GNU software license, meaning that the operating system and its source code are available for free, and can be downloaded freely from a website. Linux consists of a kernel, the shell, the file structure, and utilities. Several firms are increasing their support for Linux as an operating system, after the failure of Palm OS to increase its market share and the fear that Windows in smartphones will become the Windows we currently know of PC’s. In May of 2005, cell phone chipmaker, Qualcomm, said that it will support Linux, marking another key company to back the open-source software on handsets. Qualcomm joins No. 2 handset maker Motorola, Japanese cell phone operator NTT DoCoMo. Research firm IDC has estimated that by 2006, Linux may take as much as 4.2 percent of the market for software for highpowered smartphones, given that it's free for manufacturers to use. Other firms have embraced Linux over the past years. Sharp is the dominant vendor of PDAs that operates on Linux. The company behind Palm OS bought China MobileSoft to get a foothold in the Chinese mobile phone market and develop a broader range of software. The deal was designed to expand the company's global presence and put Linux applications squarely in its product plans. PalmSource even became a member of the Consumer Electronics Linux Forum (CELF). CELF was founded to advance the use of Linux in devices such as handheld computers and mobile phones. Founding members include Matsushita Electric Industrial, Sony, Hitachi, NEC, Royal Philips Electronics, Samsung Electronics, Sharp and Toshiba. Today there are more than 50 members. There are several commercial and academic implementations of embedded Linux for PDAs and other handheld devices. The advantages of using Linux in such devices and in smartphones, lies in that it offers licensees the possibility of eliminating or considerably reducing OS licenses fees. Linux is also able to support sophisticated applications. Adaptations of Linux for embedded devices abound. Nevertheless, on of the main obstacles to the successful adoption of Linux in the commercial mobile device market is that there is diversity and lack of standardization. No Linux PDA or smartphone manufacturer has set standards on key elements as user interface, personal information management, power management, and synchronization. This has resulted in limited compatibility among different products. But something is moving toward standardization of basic common functionalities since the Embedded Linux Consortium (ELC) is working on building a unified embedded Linux platform specification (motion voted by the ELC Board of Directors in February 2002). The ELC’s key members are FSM Labs, Inc., IBM, LinuxWorks, Metrowerks (a Motorola company), MontaVista Software, Matsushita Electric (Panasonic) and Real-Time Innovations. Other companies such as Intel, Samsung, Sharp, Siemens and Sony have provided their support at one point or another after the year 2000. There are several Linux operating systems, which work on top of the same kernel code. Embedix, one of the first embedded Linux operating systems, runs on PDAs, smart handheld devices, residential gateways, and digital TV sets. Motorola’s embedded subsidiary, Metrowerks, acquired Embedix in 2002. MontaVista’s Linux Consumer Electronics Edition 3.0 was selected for Motorola’s A760 smartphone, which integrates digital camera, Internet, instant messaging, multimedia, PDA and telephone capabilities and has been launched in China. Another important player in the Linux field is Trolltech with its Qtopia product. This is a Linux platform specifically for PDA’s, smartphones, and other mobile devices. Qtopia has received support from IBM, who announced that it is using the software as a component in its embedded Linux reference platform. 6. Market dynamics analysis 6.1 Network Externalities from the Consumer’s Perspective Both applications, which converge into a smartphone, telephony and computing, are examples of applications of technologies that were historically highly dependent on network externalities: 1. A phone needs other phones in order to be of practical use (direct externality) 2. Number of applications developed for a specific system (indirect externality) 3. Interoperability with other devices, such as laptops and desktops (indirect externality) Looking at the current state of the telecom industry the direct externality of telephony represents only a barrier of entry to the market for a new OS. Only the systems that can manage the basic functionalities of a cell phone (voice communication) will make it to the market. The interoperability between mobile phones with different OS appears to be guaranteed as current products with different OS can effectively operate phone calls. Integrated circuit (IC) producers are launching new products that support Linux allowing it to operate in a 3G environment and to communicate with existing phones. The second network externality is typical of computing systems, such as laptops or desktops, and is transferred to smartphones from PDAs. It is less strong, when compared to the first one from a product adoption standpoint, but it is much more relevant from a penetration standpoint. The analogy with Windows in the desktop market is clear: the higher the number of users of a specific platform the more applications will be developed and the more people will use the PDA (reinforcing loop). The extent to which this network externality will affect the competitive dynamics depends on the existence of the “killer app” for the smartphone. In our view, the role that Office played for Windows in the battle of the desktop operating systems, is unlikely to be the same for smartphones. People can view office files on their PDAs, but the size of the device is such that it does not make it efficient for extensive work. Moreover, there is also a certain degree of interoperability between OS in this area two (Palm OS can open Office documents). The most important applications that smartphones are currently used for are email, personal information management (PIM, that includes agenda, phone book, tasks, notes), taking pictures and listening music (Exhibit 8). Interoperability among systems is a peculiar functionality of portable devices that allows owners of multiple products to maintain the same updated information on different devices (typically aligning a database on a computer with all portable device). The ability to synchronize a smart phone with a PC, determines the degree of compatibility between the two devices and substantially affects customer utility. Currently, there is a good degree of compatibility between Windows OS systems for PC and smart-phone OS like Microsoft Mobile, Palm OS and Symbian. Non-Microsoft systems are in general less efficient in this task compared to an MS PDA or smartphones as the data structure can be different. This might indicate that Microsoft chose a soft standard approach in this context. There are other possible sources of network externalities on the consumer side (like user interface knowledge), but we believe that the ones described above should represent the highest costs for users. 6.2 Network Externalities from the Producer’s Perspective From a producer’s stand point the choice of Operating System, can be a source of the following network externalities: • Learning effects – the more expertise a producer has in an OS, the more efficient it can become in the production; • Economies of scale for producers– given the high volumes of the mobile phone industry, the development cost of the OS and of other applications could be spread over a large number of units produced; • Access to wide range of suppliers – software applications and IC must be compatible with the smartphone OS. A large number of suppliers can be a source of competitive advantage; • China effect – a large market such as China could potentially affect the trends of the rest of the world market, accelerating economies of scale for the producer that adopts China’s most preferred product. It is difficult to assess whether producer’s externalities will play a stronger role than the consumer’s externalities in shaping the competitive dynamics of the industry. In our view producer’s externalities will be particularly relevant in a business environment with strong price pressure and competition, as it happened in the PC industry, for example, when Dell entered the market and commoditizing the devices. 6.3 Standards War Will it be a standards war? It is difficult to take a definite position, because the market for smartphones is at an early stage of its life. A lot depends on the extent to which the network externalities described above will generate high switching costs between systems. At this stage, it seems that the switching costs are kept low by high degree of compatibility between different solutions and the market can accept the presence of multiple players. As a matter of fact, there are still many players in the market and the leader producers of smart-phones are still changing their positions (Motorola recently abandoned the development of its smart-phones based on MS Mobile and introduced Linux). The network externalities described above are not determining significant customer lock-in. Sales volumes of smartphones are small compared to those of cell phones and some effects could potentially become stronger at higher volumes. Currently, both the market for PDAs and the one for Mobile Phones have not converged to a single standard and it seems that every producer was able to stay vertical integrated and include proprietary standard in its device. This seems to strengthen the idea that multiple standards can coexist. Despite Nokia’s evident market leadership, it is inappropriate to consider Symbian the current standard in the OS space as the total number of units produced appears to be considerably smaller than the total market potential (Nokia’s 2004 annual production is about 10 millions units, while forecast for 2008 total market production is over 150 millions). It is clear however, that Nokia’s position in this context is much more close to an evolution strategy applied on a private-open space (assuming that Symbian specification can be used only by those in the consortium). Instead, by adopting Linux, Motorola will play a more revolutionary strategy on an open-public standard. Figure 3 6.4 The Industry and Motorola’s Position The matrix below shows the current position of Motorola in the smart-phone market. Figure 4 Motorola owns important complementary assets, such as: • Brand recognition • Manufacturing and design capabilities In terms of uniqueness the mobile phone industry is largely affected by spillovers. Companies cannot maintain uniqueness for a long time. Switching to an open standard such as Linux, decreases even more Motorola’s degree of appropriability. On the other hand, Linux might become an important source of cost advantage and allow Motorola to access a growing population of developers. This could increase the ability of the firm to innovate products more efficiently. On the other hand, given the high degree of freedom typical of the open source movement, Motorola will likely encounter coordination problems among developers. At this point in time it is clear that outside China, Nokia has a first mover advantage 7. Scenario Analysis The figure below shows the four main scenarios that can occur in the next decade(s). We plotted two axis which describe the different long-term customer requirements or preferences related to handheld devices, whichever they end up to be. The y-axis is related to the level of convergence in devices. It is not clear yet, whether consumers will prefer to have multiple devices that are designed to operate optimally for a specific purpose, such as an MP3 player, a digital camera, a PDA, pocket-size computers, etc., or if consumers will prefer to carry with them one single device that is capable of performing all these functions at suboptimal levels. The x-axis refers to the level of interoperability of devices. Consumers, in the future, might need their devices: digital cameras, laptops, desktops, television sets and smartphones to communicate seamlessly and to be able to transfer, share and utilize the same working files, such as pictures, movies, e-mail, presentations, documents, spreadsheets, etc. Figure 5 – Scenario Analysis for the Future of Smartphones and Similar Converging Devices The quadrant at the bottom left, we believe, is highly improbable. It is hard to imagine, taking a close look at the current market trends described in earlier sections, that consumers would prefer multiple devices and will not need these products to communicate between each other. The quadrant at the bottom right is one that the hardware manufacturers would like, since it allows for the creation and specialization of several niche markets segregated by application. In this scenario, in which interoperability is critical, market tipping, is most likely to occur, as it will be most efficient for one single company (e.g. Microsoft with PC’s in the 1990’s) to coordinate the creation of common standards and powerful software that can support the degree of file sharing and transferring that would take place between all the devices. If this is the case, Microsoft has a great advantage with Windows Mobile and any other derivative products that might be developed from it. The network externality would lie in the need that the average customer would have to synchronize and connect their smartphones with their laptops, desktops, TV sets, etc. Microsoft is currently better positioned to provide the seamless connectivity because of its large installed base world wide. In the quadrant to the upper left, the scenario is, although less likely than the ones that have high connectivity as a key characteristic, still plausible. In this case, with lack of need for interoperability, there would be no need from the consumers and the OEM’s perspectives to have one single operating system that has been standardized across devices. If it comes to be, that consumers require one converging device, but no interoperability, hardware and device manufacturers would engage in very strong competition in order to have the dominant design, and may or may not in the process adopt different operating systems. If, instead, the future ends up being as the one described in the upper right quadrant, labeled as “war of the OS & the Device”, then it might be that two to three leading converging devices or platforms dominate and it is foreseeable that two to three operating systems can coexist with market shares determined by the capability of the firms. The capabilities of these firms will revolve around the abilities to bring smartphones fast to the market, create new applications, develop interfaces that appeal to the public, invent new features, and establish key partnerships with content providers and network operators. 8. Recommendation Based on the analysis that we developed in the previous paragraphs, we believe that Motorola’s decision to adopt Linux OS is correct and we would suggest to embrace it 100% on all new products. The main reasons behind our recommendation are the following: – Network externalities both on the customer and the producer sides are not strong enough to set high switching costs and determine reinforcing loops that would cause market tipping – Even in the event of a typical standard war with high probability of market tipping, Nokia’s market leadership is not strong at the present stage of the smartphone industry. This would give Motorola the time to catch up. – By leveraging its market position and its strong complementary assets, Motorola could become a key sponsor of a rapidly growing adoption of Linux, along with other firms, which are joining the effort, such as Qualcomm, Sharp, Panasonic and PalmOne. This could increase the attractiveness of the system to other developers and players – Linux is a key element for a successful entry into the Chinese market. By being the first mover in China, Motorola can build strong complementary assets that would become source of competitive advantage also in markets in other developed countries and emerging economies. To facilitate the Linux adoption on a large scale, Motorola should strongly sponsor the OS collaborating with PalmSource that recently acquired China Mobile Soft, a developer of software for mobile devices, announcing its intention of creating a Palm OS based on Linux. Possibly Motorola should look for the Chinese government support. Exhibit 1a – Smartphones unit shipments to the distribution channel (* Canalys 04/2005, **Gartner research, 2004) Exhibit 1b – Smartphones market share (* Canalys 04/2005, **Gartner research, 2004) Exhibit 1c – Smartphones key market data (* Canalys 04/2005, **Gartner research, 2004) Shipments by Operating System OS Symbian Palm OS Microsoft Windows Mobile Linux Others (proprietary platforms, e.g. RIM) TOTAL 2Q04** 1.683.393 190.710 3Q04** 3.196.111 333.177 4Q04** 5.435.364 312.759 1Q05* 6.620.381 1.132.150 121.051 119.755 289.870 33.884 655.036 298.797 1.973.176 323.471 0 2.114.909 108.594 3.961.636 54.000 6.755.956 754.767 10.782.380 2Q04** 79,6% 9,0% 3Q04** 80,7% 8,4% 4Q04** 80,5% 4,6% 1Q05* 61,40% 10,50% 5,7% 5,7% 7,3% 0,9% 9,7% 4,4% 18,30% 3% 0,0% 100% 2,7% 100% 0,8% 100% 7% 100% 1Q04* 1.670.160 n.a. 361.400 995.960 n.a. 2.902.490 5.930.010 2Q04** 1.214.200 230.014 172.500 169.885 169.477 158.833 2.114.909 3Q04** 2.278.466 546.323 321.200 307.416 128.200 380.031 3.961.636 4Q04** 4.507.000 318.000 320.600 304.500 688.296 617.560 6.755.956 1Q05* 5.394.900 n.a. 654.320 1.009.040 n.a. 3.724.120 10.782.380 1Q04* 28,2% n.a. 6,1% 16,8% n.a. 48,9% 100,0% 2Q04** 57,4% 10,9% 8,2% 8,0% 8,0% 7,5% 100,0% 3Q04** 57,5% 13,8% 8,1% 7,8% 3,2% 9,6% 100,0% 4Q04** 66,7% 4,7% 4,7% 4,5% 10,2% 9,1% 100,0% 1Q05* 50,0% n.a. 6,1% 9,4% n.a. 34,5% 100,0% Operating Systems market share OS Symbian Palm OS Microsoft Windows Mobile Linux Others (proprietary platforms, e.g. RIM) TOTAL Shipments by Manufacturer Manufacturer NOKIA SONY ERICSSON FUJITSU PALMONE MOTOROLA OTHERS TOTAL Manufacturers market share Manufacturer NOKIA SONY ERICSSON FUJITSU PALMONE MOTOROLA OTHERS TOTAL Exhibit 2d – Sony Ericsson smartphones P910i (Symbian) P900 (Symbian) P800 (Symbian) Exhibit 3 Worldwide mobile handset market share, 1994-2003 (Gartner research, 24 February 2005) Exhibit 4 Worldwide mobile phones market share, Q1 2005 (IDC, April 2005) SHIPMENTS MARKET SHARE Nokia 53,800,000 30.9% Motorola 28,700,000 16.5% Samsung 24,500,000 14.1% LG Electronics 11,100,000 6.4% Sony Ericsson 9,400,000 5.4% Others 46,800,000 26.9% TOTAL 174,300,000 100% Exhibit 5 Mobile terminal worldwide sales by category, forecast 2003-2008 (Gartner research, 25 September 2004) Exhibit 6 Exhibit 7 Ownership of Symbian shares before an after Nokia purchase (Gartner research, 10 February 2004) Before After Nokia 32.2% 63.3% Psion (Motorola) * 31.1% - Ericsson 17.5% 17.5% Panasonic 7.9% 7.9% Samsung 5.0% 5.0% Siemens 4.8% 4.8% Sony Ericsson 1.5% 1.5% * Motorola transferred its shares to Psion in 2003 Exhibit 8a Consumer most desired functionalities (Entertainment Technologies Consumer Survey, Jupiter Research July 2004) 74% 73% Telephony 77% 26% 31% E-mail 25% 25% 26% PIM 23% 24% 16% IM 13% 24% 23% Photos Strong interest for the youngest age group 29% 32% 21% Music 11% 15% 8% 7% Games 11% 11% Web browsing 7% 0% 10% 20% 30% 40% 50% 60% 70% Percentage of Online Consumers Willing to Carry a Portable Device Ages 55+ Ages 35 to 54 Ages 18 to 34 80% 90% Exhibit 9 Major smartphone OS (Gartner research, 7 January 2004)