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2004 Is Likely to be Symbian's Year

It should be, and it has to be...

More than 6 million handsets featuring the Symbian OS shipped last year. WBT's Tim Bresien takes a look at the company's prospects for 2004, a critical year for the smartphone market.

If London-based Symbian Ltd. was a traditional venture-funded startup, this would be the time that investors would demand to extract a return on their dollars, pounds, and Euros. You see, many private venture funds mature over a period of five years, and their limited partners expect to find that several companies in a given portfolio have matured to the point of becoming an attractive IPO candidate or an acquisition target. In investor jargon, this is known as a "liquidity event." One or two of the companies might generate a 10x or 20x return, and make up for the majority of investments in the portfolio that inevitably go by the wayside.

But Symbian was never a traditional startup. It was never beholden to the timing of venture capitalists. This proved to be fortunate for them as the collapsing expectations of "overnight 3G" in Europe might have caused a venture-funded company to wither on the vine and never see subsequent rounds of capital. Now six years in the making, and "7 million lines of code later" as Symbian's Peter Bancroft is fond of saying, the company remains a privately held consortium of sorts. It is owned in varying degrees by some of the largest handset makers in the business: Nokia (32.2%); Siemens (4.8%); Samsung (5.0%); Ericsson (17.5%); Sony Ericsson (1.5%); Panasonic (7.9%); and UK-based Psion (31.1%). Psion's EPOC operating system provided the inspiration for what is today's open smartphone operating system: the Symbian OS v7.0s.

Symbian also remains on target to profit from the market segment it has all but defined since 1998. You could say that they've been pushing the envelope for half a decade now. The time has come for them to sign it, seal it, and - for their shareholders, licensees, and mobile operator partners - deliver compelling smartphone products that will sell in quantities measured by tens of millions.

All indications are that they will.

While the market for so-called smartphones is a fraction of the overall mobile handset sector, it is becoming a larger fraction as each month goes by. Nearly 10 million of them were sold last year. Perhaps the definition of what makes a phone a "smartphone" is relaxing as a great number of devices are shipping with robust personal organizers, Web browsers, imaging applications, and more advanced mobile networks to back them up.

At any rate, ABI Research of Oyster Bay, New York, pegs the steady rise of smartphone shipments growing to about 150 million units by 2008. ABI's January research report on the subject, "Wireless Handset Software: The Evolution of OS and Middleware Solutions and Their Impact on Next Generation Wireless Devices" estimates that the Symbian OS will garner the largest market share in four years' time, followed by Microsoft and Linux, respectively. With Symbian OS licensees currently chipping in an average of nearly $6 per phone, the future looks bright indeed.

If Symbian (the company) is to realize the revenue potential represented by the Symbian OS (the product), this is the year the company will take a giant step forward. Consider the second half of 2004 as the company's estimated time of arrival. By then we'll likely have witnessed the uptake of a new generation of phones from nine Symbian licensees including Sendo, Mitsubishi, Sanyo, BenQ, Motorola, and Fujitsu. For the most part, we'll see them in GSM markets. Already, a number of promising new Symbian phone launches in the form of the Sony Ericsson P900, the Siemens SX1, the Motorola A920, and the Nokia 6600 have occurred. Even Nokia's N-Gage mobile gaming device is built on the Symbian OS. With more than 30 new handsets in development for markets around the globe, 2004 is bound to feature a critical mass of new devices, each with a unique interface and host of applications shipped at the discretion of individual mobile operators.

It's About Time
Can you picture a group of senior managers and engineers from Motorola, Ericsson, and Nokia gathered together in a clandestine location in early 1998, discussing the limitations of their proprietary firmware and user interfaces? It's kind of hard to believe. You have to picture this meeting occurring in the middle of the night, in a smoke-filled warehouse down near the docks. As the story goes, managers from Panasonic soon joined these forward-looking competitors and all agreed that an open mobile phone operating system would benefit their respective organizations by eliminating the years of development and risk associated with individual next-generation OS development.

But give them credit. They acknowledged that there would be diminishing returns on any incremental advances they could introduce into the market by using their own in-house development teams.

And so Symbian was born, and Psion Software's EPOC OS became the basis for developing a new platform that would be designed to pay dividends years later. Symbian CEO David Levin led the transition from Psion to the newly formed company.

It is fairly clear that today's Symbian OS has allowed vendors to produce new devices with a clear roadmap for integrating the functionalities that mobile operators demand of them. They are free to experiment with designs and form factors that range from traditional to far out. And they can get to general release quickly.

Now, It's Starting to Get Personal
Another promising development for Symbian, on the road to 150 million smartphones, is the trend toward personalization of the UI (user interface) among mobile operators. Customer loyalty, especially among the consumers of higher-end smartphones, may be a direct result of the comfort level that users find beyond the ergonomics of the hardware. It is becoming incumbent upon the operator to serve up the best combination of mobile browsing, personal organization, imaging, entertainment, and camera phone functionality.

"Symbian is fully focused on open standards to drive the developer base," says Rolf Assev of Norwegian browser developer Opera Software ASA. "And they have understood that they must give operators the opportunity to customize the software for branding and services."

Opera is one of many Symbian Platinum Partners who see the open OS as a way to have their own applications accepted in greater numbers by carriers who can choose to include them based on their individual merits. Having worked with Symbian since 1999, Opera has begun to get traction in the wireless space by offering their Opera Platform on top of the Symbian OS to operators who can then integrate online content with local applications.

"Operators then have full control over the look and feel of the Home Screen and the design can be dynamically updated at any time," adds Assev.

A mobile operator using handsets with the Symbian OS might choose to develop their own custom interface, or license a third-party UI such as the Nokia Series-60, or even one from Sweden's UIQ Technology AB (a subsidiary of Symbian Ltd.).

Validation and Competition
This personalization trend contrasts greatly with Microsoft-enabled smartphones. But there will surely be room for different schools of thought as the industry develops. Motorola, for example, is leading the charge toward Linux-based mobiles while at the same time building new Microsoft and Symbian-based devices. Succeeding generations of Windows Mobile devices will make it easy for corporate CIOs to say "yes" to embracing smartphones as an extension of the corporate office. Their interfaces will offer a level of consistency from one device to the next, and from one operator to the next. And you can be sure that the Redmond giant will continue to support an army of third-party application developers.

Symbian has also seen a swell in the number of developers who are supporting their OS. This is perhaps the most positive sign of any software vendor's staying power. Combined with the trust that so many of the leading handset vendors have placed in this open environment, there is a lot at stake.

"Nokia's OS choice for smartphones is Symbian," says Timo Poikolainen, VP of marketing for the Nokia Mobile Software group. "A lot of valuable work and cumulative know-how exists in the Symbian OS about the performance requirements for portable devices. This advantage has been verified by the companies that have decided to license the [Nokia] Series 60 platform."

While some have suspected that Symbian is just an extension of Nokia, this has not proven to be true. While it is unlikely that we will ever see a Windows Mobile product from Nokia, it is apparent that many of the world's other leading handset vendors will push products to market based on a combination of platforms that give them the best chance of success with the mobile operators. Symbian is clearly a player in 2004.

Could other companies make a run at this market? Sure. But it will be very difficult. PalmSource found early success on the Treo and on devices from Kyocera and Samsung in the U.S. But it was operating in a world where success could be measured in the hundreds of thousands and validated by critical acclaim from technology pundits. The second half of the decade will find smartphones being judged not only on their sales numbers, but also by their ability to generate data revenue for their mobile operators.

Do some feel threatened by Symbian already? Maybe so. If a company is compared favorably with Microsoft in a sector that features only two major players, that is quite a burden. So the case of new mobile OS startup SavaJe looks all the more curious. Some will see the Java-focused upstart, with $30 million in funding from Ridgewood Capital, RRE Ventures, New Venture Partners, and from mobile operators Vodafone and Orange, as a reactionary venture. Perhaps the buzz surrounding the Chelmsford, MA-based company is merely an outlet for carriers to vent their frustrations at a future that looks likely to be in the hands of handset vendors (by way of Symbian) and Microsoft.

Promising Developments
The promise of the Symbian OS is that it enables its licensees to make bold leaps into the market, with devices that may appeal to only a select group of buyers at first. This is how the market will eventually come to embrace these do-everything devices. New models hit the market almost monthly. Many, after priming the publicity pump on the trade show circuit, will be discounted into oblivion soon after reaching the retail channel. We all know that the best-selling cars are case studies in compromise and day-to-day value. It's likely that there will be more hits than misses over the next year or so.

Symbian is steaming along with an A-list of phone manufacturers, a "break even" threshold of 20 million licenses on the horizon, and is picking up speed with each passing milestone and hurtling towards an increasingly smarter-device destination for mobile operators. It's true that many miles of track are yet to be laid, but that is the common landscape that all wireless players compete upon.

In late December, NTT DoCoMo announced that it would provide a total of $344 million to six handset vendors in order to facilitate the speedy development of both Symbian and Linux-based phones for its WCDMA-based Foma service in Japan. Companies participating in this windfall over the next two years include Fujitsu, Mitsubishi, NEC, Panasonic, Sharp, and Motorola. Since DoCoMo customers are almost exclusively using Japanese-manufactured handsets, this can be seen as a further validation that Symbian is being judged apart from its Nokia connection, and that the open nature of the OS puts it in league with Linux.

With Microsoft on one front, and Linux on the other, what's next for Symbian other than to facilitate the rise of smarter phones? They have voluntarily begun to release their financial results and operational figures on a quarterly basis.

If market conditions improve to the point that IPOs become common in the tech sector once again, the wireless world will need to see a strong company with a solid balance sheet, determined leadership, and strong growth prospects redefine the market for wireless software. Wall Street will need to see it. The legacy of WAP-era moonshot Phone.com is certain to be revisited with the first major announcement of a public offering by a company in this sector (and I may be one to do it myself!) Companies like Opera, SavaJe, and dozens more could use a trailblazing, new millennium IPO success story to increase their own valuations and prospects for success. Could Symbian be that company?

Unless the landscape changes dramatically, we may know for sure within the year.

More Stories By Tim Bresien

Tim Bresien is WBT's VC editor, the principal consultant with infraStar, Inc., and a freelance writer covering investments in the wireless communications sector. He is a former research analyst with the telecommunications consulting firm of Bond & Pecaro, Inc., Washington, DC, and a cofounder of the Telecom Investor Forum, held annually at SUPERCOMM.

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