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BayStreet Insights

Insights

Motorola Well Positioned in Prepaid

May 11, 2022 - Both Samsung and Motorola capitalized on LG's departure and gained considerable prepaid share in 2021. Our 2Q22 forecast has Samsung and Motorola tied for the prepaid OEM share lead. A key to MOT's success was expanding upon LG's Stylo branding strategy. Motorola has built successive generations of high-quality and good value-for-the-price devices branded by tier. The "G Play" for the entry model, a stepped-up "G Power" with best-in-class battery, and the more premium “G Stylus” with stylus support. Oddly in 2022, Samsung has merged its A32 and A12 into the A13 5G and A13 LTE. The lack of an A33 has created confusion regarding the follow-on to the popular A32. While the A13 5G is an excellent device, we currently feel Motorola's broader lineup of clearly branded devices with great value are better positioned to maintain prepaid momentum than Samsung..

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T-Mobile Shines in Tough 1Q22

May 11, 2022 - Following 4Q21's industry-leading 15% y/y growth in device activations, we forecast T-Mobile to lead postpaid carriers in 1Q22 activations (up ~5%). However, as Q1 progressed, we grew more cautious as T-Mobile slowly removed their aggressive Magenta Max promotions. Then in early February, Verizon shifted to 36-month device financing, leaving T-Mobile as the only carrier without 36-month EIP. With Verizon steadily increasing promotions throughout 1Q22, we felt T-Mobile would likely underperform. However, upon discussions with T-Mobile's channel partners, the lack of 36-month financing was a non-issue as consumers were unaware of anything other than 24 months. In the end, T-Mobile held steady, outperforming on 1Q22 net adds and hitting our original device activation forecast.

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GS22 Ultra Dominates

April 12, 2022 - While premium Android focus has shifted to the S22 Series, S21 FE and Z-Series underperformance has accelerated. The Z-Series 1Q22 volumes were roughly 35% of the Note 20's in 1Q21. The S21FE has become an afterthought following the S22 launch. The good news for Samsung is the S22 Ultra is selling exceptionally well compared to previous Ultra devices, helped by the aggressive promotional environment and 36-month financing at AT&T and Verizon. So while selling higher volumes of your premier flagship is undoubtedly not a bad thing, it is notable that Samsung's broad portfolio of bets is coalescing around a single device - the GS22 Ultra.

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SE3 Too Little, Too Soon?

April 12, 2022 - We are tracking considerable weakness (down over 50%) in iPhone SE3 sales compared to the SE2 across postpaid and prepaid channels. We believe there are three drivers: First, the SE3 launch proximity to the SE2 has limited the SE3's ability to upgrade the relatively young SE2 base. Keeping the dated form factor and adding 5G and an upgraded processor is not enough to motivate an SE buyer to upgrade early. Second, record postpaid flagship promotions limit SE3 price advantage. With only T-Mobile offering an SE3 promotion, AT&T and Verizon customers can get better deals for iPhone 12 or 13 devices. Finally, considerable prepaid SE3 supply constraints were surprising, but given the current component environment, Apple is likely prioritizing other regions globally and higher-margin devices in general over the SE3. Thus, while we believe the SE3 will sell in enviable volumes for most OEMs over the next two years, the expectation of anything close to early SE2 trends is unreasonable. The SE4 in 2024 should fare better.

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iPhone SE3 Thoughts 

Mar 9, 2022 - Apple’s iPhone SE3 announcement was slightly weaker than our expectations. A $30 price increase on Apple’s most affordable product is a step backward in prepaid. The SE3 remains $200 above the prepaid sweet spot for meaningful volumes. While we doubt it is a significant consumer concern (particularly an ‘SE’ consumer), the lack of mmWave was a surprise, especially given it is a requirement at Verizon. However, C Band support was a more critical addition, and with a likely SE4 refresh in 2024, Apple has limited exposure to cheaper mmWave devices in the low to mid-tier. We don’t believe either of these points significantly disrupts our expectations. However, Apple is certainly not using the SE3 as an opportunity to gain meaningful US prepaid share.

T-Mo Raining on Galaxy S22 Parade

Mar 9, 2022 - Our initial forecasts for the GS22 series were optimistic given the current promotional environment and the S22 Ultra's appeal to pent-up Note demand. While early trends met expectations at AT&T and Verizon, up ~10% and 15%, respectively, weak reception at T-Mobile for the cheaper S22 and S22+ models (both down ~50% y/y) has managed to offset ~20% S22 Ultra gains y/y and drag T-Mobile's S22 Series sales down ~25% y/y. We speculate T-Mobile's S22/S22+ weakness results from a unique combination of factors. T-Mobile has been more successful than AT&T and Verizon with Samsung's alternative flagship A-Series, Z Flip, and S21 FE models, partially supported by the removal and transition of Sprint's lease offers. Also, Apple and Google have made more significant gains recently at T-Mobile than AT&T and Verizon, where both brands are already more established. While still early in the cycle, it appears the S22s are underperforming at what has been since the merger the largest Android carrier.

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Entering the Next Chapter 

Feb 9, 2022 - In early 2020, with the looming Sprint & T-Mobile merger and the first 5G iPhone, AT&T dramatically increased smartphone subsidies and offered upgraders the same promotional value as switchers to protect its iPhone base. The shift proved effective; while 2020 postpaid smartphone activations were down 8%, AT&T was up 1%. In 2021, Verizon and T-Mobile embraced AT&T's increased upgrade subsidies. Verizon's broken screen trade-in offers in 2Q21 and T-Mobile's increased trade-in values with higher ARPU Magenta Max plans in the 2H21 drove meaningful improvements. So, despite the global chipset shortage, 2021 smartphone activations were up 11% y/y, with AT&T leading the pack at 16%. However, 4Q21 results show T-Mobile (up 15% y/y) and Verizon (up 3% y/y) have finally found their answer to AT&T (down 4% y/y).

Samsung Managing Compromises

Feb 9, 2022 - The chipset shortage has impacted Samsung's broad portfolio strategy more than any other OEM. The Note 21 cancelation last year was a function of Samsung compromising the Note Series for its global aspirations to grow the foldable market. The S21 FE delay from Aug 21 to Jan 22 was a compromise to support Z Series volumes in the 2H21 and still have an n-1 device for 2022. Samsung also compromised the 2022 A-Series line when it combined last year's very successful A32 5G ($260) and A12 ($160) into its A13 5G ($220). Finally, today's Galaxy S22 Ultra announcement was another compromise of choosing to support its loyal Note base at the expense of the cohesive styling of its Galaxy S22 line. Another fair trade-off but not something we see other major OEMs having to make. So, while the US postpaid market showed limited impact from the shortage (up 11% y/y in 2021), it appears the integrity of Samsung's product portfolio has not.

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3-Year Financing

January 11, 2022 - As more carriers embrace 36-month financing, we want to provide our initial view of some of the impacts should it become the standard. Compared to 24-month financing, consumers' monthly smartphone payments decrease by $10 to $15 a month for a typical ($700-$1,000) smartphone. Carriers can then more easily upsell incremental services, including premium-rate plans and other churn-reducing connected devices. Carriers would also benefit from reducing the number of consumers who pay off their smartphones and no longer have an obligation to the carrier. For OEMs, extended financing would support increased prices, offset by an elongation of the upgrade cycle. However, we would note our "average months to upgrade" estimate is already longer than 36 months (40 months) and thus do not believe 36-month terms will significantly impact the upgrade cycle. Finally, we believe the OEMs with other ecosystem offerings in the carrier stores, including smartwatches, tablets, and headphones, will benefit more than others.

Spreading its WING(s)

January 11, 2022 - Following LG's exit from the smartphone business, familiar brands like Samsung, Motorola, and OnePlus have made significant inroads in prepaid. Combined with the chipset shortage, LG's exit has opened the doors for ODM newcomers such as Wingtech, Tinno, and FIH. Interestingly, Wingtech has had more success than more established brands like Nokia and Alcatel, helped by its replacing TCL in manufacturing T-Mobile's Revvl line this year. While the Revvl V+ 5G has seen mild success at T-Mobile, Wingtech's prepaid performance has captured our attention. The Revvl V and Revvl V+ 5G at Metro combined with the Celero 5G sales at Boost have helped propel Wingtech to become the 5th largest prepaid manufacturer behind OnePlus in 4Q21. Should current trends continue, we anticipate Wingtech to overtake OnePlus in 1Q22 and capture ~5% of the prepaid market.

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Muted Black Friday Sales

December 9, 2021 - Black Friday weekend sales were weaker y/y with year-round promo strength and an earlier iPhone 13 launch taking some of the punch out of Black Friday, made worse by the low stock situation and a weaker iPhone 13 upgrade base. (See below).  Incremental BF promos lacked novelty given the already aggressive promotional environment, with November promo strength ending flat to slightly higher when compared to October.  Despite slight improvements, supply remained heavily constrained, with important flagship ship times slipping well past the holidays.  With less consumer stimulus y/y and relatively mild y/y flagship upgrades in the iPhone 13 and Z Series, a muted Black Friday makes sense in hindsight.

Negative Echo from 6S Cycle

December 9, 2021 - When we analyze Apple's device cycles and their penetration of our app data panels, we have come across a unique weakness in upgrade potential every three years.  The tremendously successful iPhone 6 and 6 Plus launch in 2014 introduced two large-screen devices and completely removed Apple's “small screen” problem.  The 6 Series success inadvertently created a trough in Apple's 6S sales the following year.  Three years later, as the smartphone upgrade cycle elongated to three years from two, the XS/R cycle was also relatively weak.  Since then, the iPhone 11 and 12 cycles have generally been seen as successes, setting up the iPhone 13 on the third anniversary of the weaker XS/XR cycle.  So, while promotions and 5G are favorable tailwinds and there are certainly other factors in play, we believe a crucial drag on iPhone 13 sales, currently hidden by supply constraints, is the underlying negative "echo" in the upgrade base that began with the iPhone 6S.

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Samsung 1Q22 Reset

November 10, 2021 - Samsung has high ambitions for 1Q22 and seems well-positioned to follow on the y/y success of the GS21s.  We expect the Galaxy S22s to launch on Feb 25th with similar price points to the GS21s.  The S22 Ultra will come with built-in S-Pen storage and a new ultra-thin form factor.  With the lack of a Note series this year and relatively poor reception of the Z-Series, we anticipate 10-15% y/y growth in GS22 launch sales.  Samsung is also expected to launch an S21 FE and refresh portions of the A-Series in January.  We feel the S21 FE will provide marginal benefit in 1Q22 given its proximity to the GS22 announcement. Meanwhile, earlier A-Series refresh should better position Samsung for tax season.

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2H21 Crosscurrents

October 11, 2021 - As we hit the first anniversary of the Sprint / T-Mobile merger, the carrier's offers to upgrade 5G subscribers are nearing record highs.  The US Android market is weaker than ever due to the global chipset shortage, lack of premium Android competitors, and Samsung's attempt to transition to the polarizing Z Series.  Apple is challenged with how to follow up two successful cycles, each addressing a different part of its base: the value-focused iPhone 11 and the enthusiasts-focused iPhone 12. All of the above, combined with shifts in consumer buying patterns including the pandemic-driven increased willingness to wait and confusion from Apple alternating between Q3 and Q4 launches, has created an unusual number of crosscurrents in the 2H21.

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Chipset Shortage Update

September 9, 2021 - The global chipset shortage continues to impact the smartphone market in unique ways.  Our first surprise was consumer willingness to wait for out-of-stock Samsung devices to ship in 2Q21, which helped limit Samsung's share losses. Another is the disproportional pressure on T-Mobile's value device portfolio as OEMs shift focus to higher-margin devices.  We believe this has created a unique situation for T-Mobile to allow more OEMs to shine.  While it is difficult to handicap which OEM will succeed, Nokia, TCL, Motorola, OnePlus and Wingtech can all grow meaningful share at T-Mobile if they can find the supply.

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Q2 Postmortem

August 11, 2021 - 2Q21 reported postpaid smartphone activations growth of 19% y/y (18.7M) was much stronger than our 4% (16.3M) forecast.  We now believe we underweighted Q2 promotional impacts. Our Q2 w. avg discount for Verizon and T-Mobile grew 100%+ y/y, with June alone up ~200% y/y.  We also overweighted the negative impact of the chipset shortage.  We now believe the shortage had minimal impact due to consumer willingness to wait a few days for their device to ship.  To our surprise, record promotions drove activations up 3% q/q in 2Q21 (when typical seasonal postpaid trends are q/q decline) despite the lack of Galaxy S21 launch in the Q and the chipset shortage.

Why We Like the Pixel 6s

August 11, 2021 - Our positive Pixel 6 stance stems across many facets, with their Tensor SOC as the core y/y improvement.  Google will attempt to convince premium Android buyers they do not need the latest Qualcomm chipset.  If achieved, Google will lay the foundation for future Pixel success despite a lack of global scale.  Another critical improvement y/y is Google's recent messaging deals with T-Mobile and AT&T.  We believe these deals will lead to much-improved carrier support.  Finally, increased pricing y/y to $600 (Pixel 6) and $800 (Pixel 6 Pro) positions the devices in the sweet spot of US flagship volumes.  However, Google must execute in all phases, including marketing, distribution, and device performance, to meet our ~1.0M 4Q21 device forecast.  Hopefully, the sixth time will be the charm.

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Chip Shortage Impact on Android Q3 Launches

July 7, 2021 - We have not expected a Note 21 launch in 3Q21, as Samsung shifted to maximize the Z Flip 3 and Z Fold 3 supply. However, we now understand chip shortages have also likely killed the S21 FE and will limit the Pixel 5a availability to non-carrier channels, as Google tries to maximize Pixel 6/6 Pro component supplies.  The lack of a Galaxy S21 FE ($700) should benefit the Pixel 6's ($600-$800).  However, the biggest beneficiary of the supply shortage remains Apple, which has seen little impact thus far.  Our supply chain checks continue to indicate all is fine with their late Sep iPhone launch. 

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Carrier Promotions Increase to New Highs

July 7, 2021 - In June, Verizon and T-Mobile notably increased their promotions to respond to AT&T's consistently aggressive $700+ upgrade offers with trade-in.  To us, the June / late Q2 timing of their responses signals T-Mobile and Verizon were not seeing expected Q2 growth.  Now the question is, with AT&T showing no signs of changing strategies, what happens next should subscriber growth still prove elusive?  Our base case is this level of promotion is here to stay and could quickly get more aggressive.

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iPhone 12 Pros Shine

December 14, 2020 - The iPhone 12 Pro variants are outperforming the 11 Pros due to several factors, including aggressive carrier promotions and the introduction of 30-month financing at T-Mobile and Verizon.  The increase in base iPhone 12 price has also reduced the “Pro premium” by $100-$130 y/y.  We now expect the iPhone 12 Pros to achieve 63% mix of iPhone 12 sales in 4Q20, up from 56% for the 11 Pros last year.  Our 4Q20 Apple ASP is increasing to $864 from $840 in 4Q19. Interestingly, the iPhone Mini is underperforming our modest expectations as our checks indicate its size is too small for its full flagship price ($700+).

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5G is a Feature Not a Savior

October 8, 2020 - While 5G will undoubtedly be an essential innovation, we view 5G networks as moving along a spectrum beginning in 2019 that will take another two to three years to achieve meaningful consumer utility beyond simple future-proofing.  Samsung attempted to charge a 5G premium for variants of its GS10, Note 10, and its entire GS20 portfolio and did not succeed.  Even without a premium price, we have seen minimal traction for “value 5G” devices in 3Q20, as they lack the flagship status consumers prefer.  We believe it is safe to conclude the attempts to charge a 5G premium failed, and today's 5G is more of a carrier network marketing opportunity than a meaningful smartphone experience worth a premium.

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