DoCoMo said to have promised Apple 40% of sales will be iPhone

Posted:
in iPhone edited January 2014
The iPhone's long-awaited arrival on Japan's largest carrier could signal big trouble for other smartphone manufacturers, as the carrier has announced that the iPhone 5s and 5c will likely account for 40 percent of its future smartphone contracts.



The announcement of a deal to get the iPhone onto NTT DoCoMo sent ripples through Japan's native smartphone environment. DoCoMo has previously worked with other smartphone makers to boost sales in the absence of an iPhone option, but the carrier ? according to Nikkei ? offered the 40 percent quota to Apple as a concession to land the bestselling smartphone.

In the years since the iPhone's introduction, DoCoMo has slowly but surely lost subscribers, as it did not carry Apple's smartphone. The carrier's rivals, though, do carry the iPhone, and they have prospered as DoCoMo has struggled. While DoCoMo added just 43,000 users in August, KDDI added 209,200, and SoftBank added 250,300.

While it remains Japan's largest wireless carrier ? with roughly 60 million subscribers, about half of Japan's population ? DoCoMo executives have in the past explicitly blamed the iPhone as a reason for subscriber losses. Apple and DoCoMo were until recently at an impasse, with DoCoMo insisting that it be able to preinstall carrier-specific software on Apple's phone and Apple resisting. It is unclear how the two companies came to an agreement and what, if any, concessions Apple made in the process.

The DoCoMo deal may not signal the end for the major Japanese handset manufacturers; Sony, with 20.6 percent of the Japanese market, and Sharp (13.9 percent) will likely continue on, though in a tougher position. Some other smaller players, though, are likely in trouble.

"Japanese handset manufacturers are already bound for extinction," Ichiyoshi Investment Management's chief fund manager told Yahoo News, "and this will just accelerate that process. Firms such as Fujitsu and Kyocera could go the way of NEC, which is now pulling out of handsets. Panasonic is also cutting back on smartphones.
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Comments

  • Reply 1 of 33

    Wonder if Apple gave them any concessions. If not, that's a big swing from holding out and demanding carrier software to be installed to getting nothing and promising 40% of smartphones sold would be iPhones.

  • Reply 2 of 33

    They really don't have any sort of way to promise that, but it's pretty evident that it's going to be the case anyway. That'd be why Apple agreed.

  • Reply 3 of 33
    pmzpmz Posts: 3,433member
    Quote:

    Originally Posted by Tallest Skil View Post

     

    They really don't have any sort of way to promise that, but it's pretty evident that it's going to be the case anyway. That'd be why Apple agreed.


     

    More likely DoCoMo promised to purchase a certain number, or certain dollar amount. Much like Sprint did.

  • Reply 4 of 33
    hydrhydr Posts: 146member
    Excellent new coming from Apple regarding docomo - wallstreet does what it does best and penalizes profits. Look no further than Amazon to see what they do reward.
  • Reply 5 of 33
    lkrupplkrupp Posts: 6,618member

    Well, DoCoMo did admit they lost 40,000 subscribers because they didn't have the iPhone. That's certainly an incentive to do business.

  • Reply 6 of 33
    pmzpmz Posts: 3,433member
    Quote:

    Originally Posted by TheUnfetteredMind View Post

     

    Wonder if Apple gave them an concessions. If not, that's a big swing from holding out and demanding carrier software to be installed to getting nothing and promising 40% of smartphones sold would be iPhones.


     

    It makes more sense than you realize. Apple made them an offer they couldn't refuse.

     

    DoCoMo can only play the big dog for so long, meanwhile they're losing sales by not having the iPhone. Apple showed them what was coming this year and said, "It would be an especially poor decision to once again hold out for no good reason, this year." DoCoMo saw the colored 5C and the fancy 5S and signed the agreement.

  • Reply 7 of 33
    How can this be? Apple has no innovation and is no longer cool? The iPhone is struggling before the Android onslaught!
  • Reply 8 of 33
    They have 60 million subscribers which if we assume 70% are on smartphones then that is 42 million smartphone subscribers. If we assume that they will all upgrade to a new smartphone in the next 3 years then we have 42*40%/3 = 5.6 million iphones sold per year. If they all upgrade over 2 years that's an addition 8 million iphones sold per year.

    Apple sold aroudn 125 million iPhones in 2012 so this can be a significant addition.
  • Reply 9 of 33
    gatorguygatorguy Posts: 19,816member
    It reminded me that Apple requiring quotas in European carrier contracts has prompted a preliminary EU investigation over anti competitive practices.

    http://appleinsider.com/articles/13/05/27/apples-iphone-sales-tactics-in-europe-under-antitrust-investigation
    http://www.dailytech.com/European+Carriers+Tattle+on+Apple+to+EU+for+Anticompetitive+Contracts/article30188.htm
  • Reply 10 of 33
    Quote:

    Originally Posted by Tallest Skil View Post

     

    They really don't have any sort of way to promise that, but it's pretty evident that it's going to be the case anyway. That'd be why Apple agreed.


     

    Question is does DOCOMO has prepaid plan or post paid like US or not. If it has post paid/contract plan, it will be very easy to grab 40-50% share. If it is pre-paid, most likely local companies will drop down prices to stay in market and it will be difficult to get 30-40% share.

  • Reply 11 of 33
    Gatorguy, your post reminded me of the claim Verizon was on the hook for owing Apple $14.5 billion for not selling enough iPhones.

    The media (Bloomberg, AP, Reuters, WSJ) frenzy of that claim died down quickly without any public resolution.

    I wonder what happened to that claim.
  • Reply 12 of 33
    Gents, when carriers deal with Apple the HAVE to agree to a specific volume which Apple has to approve, if the forecast is too low it's 'no deal' and Apple gladly walks away and will focus on more interesting carriers/markets. DoCoMo has messed it up and even though they're biggest in terms of customers, they are the real looser in this deal - they have to get iPhone or risk further erosion in customers (and those who churn tend to have above average ARPU, which hurts even more).
  • Reply 13 of 33
    Quote:
    Originally Posted by Gatorguy View Post

    It reminded me that Apple requiring quotas in European carrier contracts has prompted a preliminary EU investigation over anti competitive practices.

    http://appleinsider.com/articles/13/05/27/apples-iphone-sales-tactics-in-europe-under-antitrust-investigation
    http://www.dailytech.com/European+Carriers+Tattle+on+Apple+to+EU+for+Anticompetitive+Contracts/article30188.htm

     

     

    'requiring a quota' can or can't be illegal... but 'stipulating a quota for discounts' is not.

     

    Typically quotas are for a discount rate.  Apple wants a defined production rate, and Docomo wants to get as much 'profit' as possible per iphone sale, and therefore will commit to receiving X devices per month at a net discount on a 24 month schedule.   

     

    Perfect for Apple in reducing production variance risk, and good for docomo, as it can lower it's short term risk (more profit per sale), and defer the primary risk, lack of adoption for 2 years (where it can adjust and plan for the worst).

     

    If you don't make your quota, you must pay back the difference in discounts (let's say $30/phone  for discount for 16 [10 5c, 6 5s] million phones at an ASP of $600US, your  wholesale price is $550 minus a $50 discount (all numbers here are made up).

     

    You sell 14 million in the contract period.   you owe Apple either a purchase of 2 million phones [let's say the agreed upon combined internal sales price is $550 US... 1.1 Billion of product you can sell to recoup your loss, and preserve your writeoffs] or  $30 on 14M (420M... of lost money).

     

    The 5

     

     

     

  • Reply 14 of 33
    And I think back to when the iPhone was first introduced to Japan. It was claimed how the iPhone would be a massive failure because Japanese feature-phones had everything while the iPhone had nothing. No Japanese consumer would ever consider buying an iPhone because the iPhone didn't have a loop to hook a Hello Kitty strap to. The iPhone had no built-in TV or eWallet or eMoji or NFC. Worst of all, no physical keyboard that every Japanese consumer needed to send text messages. The iPhone had been determined by all the analysts and pundits to become the biggest Western smartphone failure of all time in Japan.

    It's strange how things turned around for the iPhone in Japan and some individuals there are saying the iPhone could become the smartphone market leader in Japan. Not American analysts, though. They still believe the new iPhones will again be a massive failure due to being overpriced and having a tiny display. Maybe Japanese consumers have smaller hands and prefer a smaller display, but Wall Street claims all consumers everywhere in the world want large displays, so no one will buy iPhones anymore when Android smartphones offer the biggest bang for the buck. We'll see in time who's called it correctly.
  • Reply 15 of 33
    Quote:
    Originally Posted by Constable Odo View Post



    <...> Maybe Japanese consumers have smaller hands and prefer a smaller display, <...>

     

     

    or may be some people have smaller brain ....

  • Reply 16 of 33
    gatorguygatorguy Posts: 19,816member

    'requiring a quota' can or can't be illegal... but 'stipulating a quota for discounts' is not.

    Typically quotas are for a discount rate.  Apple wants a defined production rate, and Docomo wants to get as much 'profit' as possible per iphone sale, and therefore will commit to receiving X devices per month at a net discount on a 24 month schedule.   

    Perfect for Apple in reducing production variance risk, and good for docomo, as it can lower it's short term risk (more profit per sale), and defer the primary risk, lack of adoption for 2 years (where it can adjust and plan for the worst).

    If you don't make your quota, you must pay back the difference in discounts (let's say $30/phone  for discount for 16 [10 5c, 6 5s] million phones at an ASP of $600US, your  wholesale price is $550 minus a $50 discount (all numbers here are made up).

    You sell 14 million in the contract period.   you owe Apple either a purchase of 2 million phones [let's say the agreed upon combined internal sales price is $550 US... 1.1 Billion of product you can sell to recoup your loss, and preserve your writeoffs] or  $30 on 14M (420M... of lost money).

    The 5

    That's not how this one is reported tho. It says that Apple's agreed-upon contract stipulates that 40% of DoCoMo's smartphone sales would have to be iPhones. That would probably necessitate dropping any further Android or WinPhone promotional activity for the time being. Perhaps the report is inaccurate of course.
  • Reply 17 of 33
    Quote:

    Originally Posted by Constable Odo View Post



    And I think back to when the iPhone was first introduced to Japan. It was claimed how the iPhone would be a massive failure because Japanese feature-phones had everything while the iPhone had nothing. No Japanese consumer would ever consider buying an iPhone because the iPhone didn't have a loop to hook a Hello Kitty strap to. The iPhone had no built-in TV or eWallet or eMoji or NFC. Worst of all, no physical keyboard that every Japanese consumer needed to send text messages. The iPhone had been determined by all the analysts and pundits to become the biggest Western smartphone failure of all time in Japan.



    It's strange how things turned around for the iPhone in Japan and some individuals there are saying the iPhone could become the smartphone market leader in Japan. Not American analysts, though. They still believe the new iPhones will again be a massive failure due to being overpriced and having a tiny display. Maybe Japanese consumers have smaller hands and prefer a smaller display, but Wall Street claims all consumers everywhere in the world want large displays, so no one will buy iPhones anymore when Android smartphones offer the biggest bang for the buck. We'll see in time who's called it correctly.

    Absolutely....goes to show that a long term vision and emphasis on a quality user experience withstands the test of time.

  • Reply 18 of 33
    They really don't have any sort of way to promise that, but it's pretty evident that it's going to be the case anyway. That'd be why Apple agreed.

    They researched it.
  • Reply 19 of 33
    With a $100 iPhone available in all countries, a lot of colorful options, a version with finger print recognition, new big name carriers, and 64-bit OS/awesome new camera/totally restyled OS, I see a large growth potential in a a company that was already taking in more than everyone else to begin with. Interested to see what's in store for apple.
  • Reply 20 of 33
    e1618978e1618978 Posts: 6,073member

    June 2013:  "We are in no hurry, the iPhone is no longer the God of all smartphones.  I don't think it is indispensable for us to sell the iPhone." -- DoCoMo



    That was a pretty quick and dramatic turnaround of opinion.

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