DSP Tutorial

Digital Signal Processor (DSP)

A Digital Signal Processor is a special-purpose CPU (Central Processing Unit) that provides ultra-fast instruction sequences, such as shift and add, and multiply and add, which are commonly used in math-intensive signal processing applications.

DSPs are not the same as typical microprocessors though. Microprocessors are typically general purpose devices that run large blocks of software. They are not often called upon for real-time computation and they work at a slower pace, choosing a course of action, then waiting to finish the present job before responding to the next user command. A DSP, on the other hand, is often used as a type of embedded controller or processor that is built into another piece of equipment and is dedicated to a single group of tasks. In this environment, the DSP assists the general purpose host microprocessor.

Digital Signal Processing

Digital Signal Processing is a technique that converts signals from real world sources (usually in analog form) into digital data that can then be analyzed. Analysis is performed in digital form because once a signal has been reduced to numbers, its components can be isolated, analyzed and rearranged more easily than in analog form.

Eventually, when the DSP has finished its work, the digital data can be turned back into an analog signal, with improved quality. For example, a DSP can filter noise from a signal, remove interference, amplify frequencies and suppress others, encrypt information, or analyze a complex wave form into its spectral components.

This process must be handled in real-time – which is often very quickly. For instance, stereo equipment handles sound signals of up to 20 kilohertz (20,000 cycles per second), requiring a DSP to perform hundreds of millions of operations per second.

Types of DSPs

Because different applications have varying ranges of frequencies, different DSPs are required. DSPs are classified by their dynamic range, the spread of numbers that must be processed in the course of an application. This number is a function of the processor’s data width (the number of bits it manipulates) and the type of arithmetic it performs (fixed or floating point). For example, a 32-bit processor has a wider dynamic range than a 24-bit processor, which has a wider range than 16-bit processor. Floating-point chips have wider ranges than fixed-point devices.

Each type of processor is suited for a particular range of applications. Sixteen-bit fixed-point DSPs are used for voice-grade systems such as phones, since they work with a relatively narrow range of sound frequencies. Hi-fidelity stereo sound has a wider range, calling for a 16-bit ADC (Analog/Digital Converter), and a 24-bit fixed point DSP. Image processing, 3-D graphics and scientific simulations have a much wider dynamic range and require a 32-bit floating-point processor.


DSP chips are used in sound cards, fax machines, modems, cellular phones, high-capacity hard disks and digital TVs. According to Texas Instruments, DSPs are used as the engine in 70% of the world’s digital cellular phones, and with the increase in wireless applications, this number will only increase.Digital signal processing is used in many fields including biomedicine, sonar, radar, seismology, speech and music processing, imaging and communications.


According to Forward Concepts, the DSP chip market was estimated to be $17.6B in 2007.

Additional sources of information*

Bores Signal Processing – Intro to DSP
What is.com – digital signal processing

Companies providing DSPs

* The WAVE Report is not responsible for the content of external sites

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Broadband Power Line Tutorial

by James Stenger

Broadband power line (BPL) is the term coined by the FCC for new modems (BPL modems) used to deliver IP-based broadband services on electric power lines. On April 23, 2003, the FCC adopted a Notice of Inquiry (NOI), expressing enthusiasm about the potential of the BPL technology to enable electric power lines to function as a third wire into the home, and create competition with the copper telephone line and cable television coaxial cable line. The FCC said that BPL service can be offered now using BPL modems that comply with existing FCC Rules. However, the FCC also asked whether changes to its rules are needed, either to remove unnecessary barriers to BPL service or to protect other devices from interference from BPL modems.

BPL modems use silicon chips designed to send signals over electric power lines, much like cable and DSL modems use silicon chips designed to send signals over cable and telephone lines. Advances in processing power enable new BPL modem chips to overcome difficulties in sending communications signals over the electric power lines that could not be overcome with less computing power. BPL modem speed, like cable and DSL modem speeds, is changing rapidly with each advance in new technology, so it would be difficult to make any generalization here that would be accurate or timely.

The FCC NOI discusses two types of BPL, In-house BPL and Access BPL.

In-house BPL is a home networking technology that uses the transmission standards developed by the HomePlug Alliance. Products for in-home networking using the electric outlets in your home (or office) are available in stores now. In-house BPL products can comply relatively easily with the radiated emissions limits in Part 15 of the FCC’s Rules, because the products connect directly with the low voltage electric lines inside your home or office. In-home networking, while exciting and innovative, is not a major policy concern for the FCC. What the FCC is really wrestling with is how to get broadband Internet access over “the last mile” to the home.

Access BPL is a new technology to carry broadband Internet traffic over medium voltage power lines. BPL modems that electric utilities and their service partners can install on the electric distribution network also are available now. Medium voltage power lines are the electric lines that you see at the top of electric utility poles beside the roadways in areas that do not have underground electric service. Typically there are three electric lines (called phases A, B and C), each carrying several thousand volts. One phase is usually enough to power the houses on a residential street, two or even three phases can be joined together to power the big electric motors in an industrial or commercial area. (You also may see a fourth wire that is the ground wire.)

Inductive couplers are used to connect BPL modems to the medium voltage power lines. An inductive coupler transfers the communications signal onto the power line by wrapping around the line, without directly connecting to the line. A major challenge is how to deliver the signal from the medium voltage line to the low voltage line that enters your house, because the transformer that lowers the electric power from several thousands volts down to 220/110 is a potential road block to the broadband signal. Several methods are now available that successfully solve this problem.

Interference issues between unlicensed devices, including BPL modems, and other electronic devices are governed by Part 15 of the FCC’s Rules. All electronic devices sold in the U.S. have to meet FCC radio frequency (RF) emissions limits. When BPL modems are installed on underground electric lines, the communications signal is shielded by the conduit and the earth and as a result is unlikely to cause interference to other communications services. The FCC is more concerned about the interference potential of BPL signals transmitted on exposed, overhead medium voltage power lines.

Public comment responding to the NOI on BPL is invited by the FCC, both from the proponents of the new BPL service, i.e., electric utilities and BPL vendors, as well as those who might be impacted by the BPL signals. For example, on most electric utility poles you will notice that below the four electric utility lines there is a lower segment of the pole where telephone and cable television wires are attached (referred to as the communications space). One of the questions the FCC asks is whether radiated signals from access BPL systems on the electric power lines would interfere with signals on the cable and telephone lines, and vice versa. We can expect a lively debate in the comments filed in response to the NOI on this issue, since the parties involved are competing for the same customers.

A more intelligent electric power grid. Speaking of competitors, why should we care about any of this when 3G wireless cellular telephone networks, wireless in-home networking and Wi-Fi hotspots claim to have the answer to delivering broadband to everyone? Electric utilities are not just looking at BPL as a way of entering the communications business. In fact, they may want to leave that part of BPL to a partner, perhaps an ISP, a CLEC or a long distance company looking for an alternative last mile path to their customers. Electric utilities are interested in BPL because it can give them an intelligent electric distribution grid. This could result in lower electric power costs, less pollution and greater reliability and security.

A better connected appliance. What’s interesting about BPL is that every electric device is connected to the electric distribution network. Potentially then, BPL could let chips in every electric device talk to each other. Could we put a Wi-Fi, Blue Tooth or other wireless chip in every appliance? Yes – but BPL may be a better solution. Those who had PC’s before the Internet exploded remember the difference in functionality between a standalone PC and a networked PC. Networking every electric device together over the power lines might result in a similar growth in productivity and convenience for your home and office.

More Information

The text of the FCC NOI can be found here (PDF).
Website of the HomePlug Alliance: www.homeplug.org

About the Author

The author of this tutorial on BPL, James A. Stenger, is a telecom lawyer in Washington, D.C. He worked on BPL for two years leading up to the FCC NOI adopted in April, 2003.

Please note that The WAVE Report is not responsible for content on additional sites.

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Bluetooth Tutorial


Bluetooth is a de facto standard and specification for small-form factor, low-cost, short range radio links between mobile PCs, mobile phones and other portable devices. The technology allows users to form wireless connections between various communication devices, in order to transmit real-time voice and data communications. The Bluetooth radio is built into a small microchip and operates in the 2.4Ghz band, a globally available frequency band ensuring communication compatibility worldwide. It uses frequency hopping spread spectrum, which changes its signal 1600 times per second which helps to avoid interception by unauthorized parties. In addition software controls and identity coding built into each microchip ensure that only those units preset by their owners can communicate.

The specification has two power levels defined: a lower power level that covers the shorter personal area within a room, and a higher power level that can cover a medium range, such as within a home. It supports both point-to-point and point-to-multipoint connections and provides up to 720 Kbps data transfer within a range of 10 meters (up to 100 meters with a power boost). The technology uses omnidirectional radio waves that can transmit through walls and other non-metal barriers. If there is interference from other devices, the transmission speed decreases but does not stop.

With the current specification, up to seven slave devices can be set to communicate with a master radio in one device. This connection of devices (slaves and master) is called a piconet. Several piconets can be linked together to form scatternets which allow communication between other device configurations.

On April 21, 2010 the Bluetooth SIG completed version 4.0 of the Bluetooth Core Specification. One of the most significant advancements was the inclusion of LE, Low Energy, which will let Bluetooth operate in devices for 1 year or more with only small better. Bluetooth watches are a possibility.

Bluetooth SIG

The Bluetooth SIG (Special Interest Group) was founded in 1998 by Ericsson, IBM, Intel, Nokia and Toshiba. Since that time more than 13,000 member (adopters) companies have joined the organization.

Certification Process

Before a manufacturer can release a product with the Bluetooth wireless technology on the market they must be qualified to standards defined by the SIG. The manufacturer must also obtain Regulatory Type Approval within the country it is to be sold.


IDC estimates the Bluetooth chip market will beach $3.3B by 2012.

Find out more…

Official Bluetooth site:www.bluetooth.com

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Emerging Markets V – Consumer Market Ecosystem

Defining a Consumer Market Ecosystem – A Framework for Understanding Emerging Markets


As we got engaged in these markets it became clear there were ecosystems in place. To better understand the ecosystem we needed a model and this evolved as the assessment progressed. It helped us understand what is happening but more important to characterize the forces of disruption. Note that this ecosystem is from a consumer perspective and not representative of the supply chain or OEMs.

The components of the model include the following.


  • Real
  • Virtual

Sales Presence

  • Real
  • Virtual


We consider each.


To make effective use of a computer requires a level of literacy and basic understanding of the technology. We found it interesting that there were no computer shops where at least one person was fluent in English.

But this same level of education is not required for the cell phone. Literacy is not required and this is one of the reasons that the cell phone penetration in Africa is so high, 80%, and the PC penetration so low.

For all the countries in this effort the educational skills were not in question. This is reflected in the literacy percentage rates, consistently in the 90’s.


A society, that is, the geographical area of the country or region, needs to generate wealth. There are many ways to do this and one which stood out in several countries is oil, as in Azerbaijan, and expectantly in Iraq. In the case of Georgia it is outside investment, in part, linked the Western affiliation of the government. On a personal level, which is what matters in this ecosystem, there are two components of wealth.

This is the per capita income of the population, how it is rising and the distribution of wealth in society. Asymmetries could easily be seen in countries such as Georgia, Macedonia and Kosovo. This is consistent with the PPP, the measure of personal wealth used here.

On a personal level, Virtual Wealth is credit. This is a large factor and we saw it in many forms from credit terms in a store, to bank loans to credit cards.


This is what a buyer learns about a product in advance of the purchase and in the process of buying. In developed countries we think of the Internet as a major source of information but in this assessment the POP, point of purchase, played a major role. Yet, we saw on numerous occasions where the Internet was the primary source of information but the POP provided essential “touch and feel” to close the sale, see below.

Sales Presence

This is where the actual purchase is made.

A brick and mortar location. It came in many forms, from malls, to system builders to converged stores. At the upper end of the scale are managed retail.

Online shopping, many called this Internet shopping.


In many cases delivery is no more that walking away with a just purchased product. But in those countries where Internet buying is present delivery and the means of purchasing and receiving the good purchased are important elements.


This is the environment where the buyers live and use computers or cell phones. For example, we found that the environment had a major impact on the purchases of the iPhone. From a different perspective the security environment in Iraq has a significant impact on the ability of the country to create wealth.

In order to use the ecosystem model we need to frame it in the context of what ecosystems exist. Then it will be applied to various markets of a Market Spectrum. This will be applied to personal computers but a similar description can be done with smartphones.

Mature Market

Today a mature market, such as in the US consists of the following:

Education – Well educated especially in technology

Real – significant buying power
Virtual – extensive credit easily available

Information – Internet is used extensively
Sales Presence

Real – Big box stores on the decline, system builders virtually gone
Virtual – Increasing Internet purchases with all the major OEMs having a direct presence


Wide range from store pickup to FED EX overnight delivery. To the door delivery is expected. Sales tax and other fees are usually not present and increasingly shipping is free.

Environment – Technology is embedded in the fabric of society and personal security not an issue.

Undeveloped Market

This is a broad generalization, not of a specific market.
Education – Rising skill levels including the increasing use of computers in schools

Real – A computer is barely affordable
Virtual – none

Information – In store and mostly provided by sales personnel
Sales Presence

Real – System builders making the lowest cost systems
Virtual – None

Delivery – If products come outside the country VAT, Customs and even postal delivery erodes the convenience.
Environment – Computers are seen as the means to improve the success of children. Personal security may be an issue.

One element of this model based approach is as a tool to ask – how can a product get to market from brand awareness, opportunities to purchase and delivery? In the end it will be by the sales presence but influencing the buyers along with a strong sales presence are important components. Another element is that one tends to view markets outside those that one lives in, in the same context as one’s home market. This bias can lead to important ecosystem misperceptions.


The insights gained from this reporting can best be summarized by a statement made by a store owner in Georgia: In emerging market one MUST know the local customs – you cannot just push products into the market

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Emerging Markets IV – Iraq

Iraq is a Significant Market Waiting to Happen

Iraq is an excellent example of a unique Emerging Market with many special considerations. This is the largest country, in population, of those visited.

We approached the entry into Iraq with some trepidation. An assessment of Iraq is made more complex because center of the market, in terms of population, is in Baghdad.

We chose to arrive in Erbil, the capital of Kurdistan, and assess the situation for an entry to Baghdad. Advance information about the PC market, including the location of shops in Baghdad, was received from the Iraq Embassy in Washington, DC. They also cited a place to stay for journalists. This provided the basis for travel plans after the entry into Erbil.

The prospects for going to Baghdad declined when 12 days before the possible entry, the recommended hotel was bombed. Further discussions with individuals on the flight into Erbil painted a poor security picture in Baghdad. There was less concern about bombing and more on kidnapping. The budget for this reporting did not support ransom expenses.

Shortly after arrival in Erbil, once the situation was assessed in Baghdad, it was decided not to go. All attention turned to collecting information at this entry point. On the flight in an Iraqi native but US citizen provided some early hints on where to go and what to see. Once at the hotel this was confirmed. Everyone cited the Majidi Mall as a must see.

In spite of being late it was decided to make an evening trip to the Mall. This had risks but by all indications it would be safe. Taxi transportation was readily available at the mall so the prospects of getting stranded were low.

To say that I was surprised at this mall is an understatement. Modest by US standards it nonetheless was of high quality, fitted with first class stores, had a play area for children, a partially completed food court and, and most important, a hypermarket called City Centre. The mall was packed, festive and many were taking pictures. Parking was available and security everywhere. But in the mall it was like a different world – being place shifted out of Iraq.

The City Centre hypermarket was similar to a WalMart SuperStore – a one stop shop. This market comes from a company in Kuwait. We spoke with a manager in the computer department. There were 8 notebooks and 1 netbook on the open display. The prices were quite reasonable and in $. The netbooks have been selling very well. There are also PC accessories using LG products. We were surprised to see an iPhone for sale at $975. My Blackberry connection was refused – no data services in Iraq – which left me perplexed on how an iPhone could work here.

City Centre was an oasis. We needed to learn more.

This market spawned a number of questions. During the visit to Kuwait a City Centre hypermarket was found. We were able to interview a store manager very familiar with Erbil store and market.

“When the mall was opened on 31 December 2009, it was impossible to get in, there were too many people. For City Centre this was our first venture outside of Kuwait. It took 4 years to go from concept to operations. The market is virgin ground – everything is new. For example, the road in front of the store was not even completed until 6 months before the opening. We had to train all the staff, establish routes of product entry and delivery, and operational procedures.

This mall is a shock to Iraq. They have never seen anything like this and did not know what to do. For example, we brought credit cards to the market – another new factor in Iraq. We felt it essential to have adequate parking.

Currently the sales are down since opening but this was expected. We are making our numbers. Each month the sales are above the last month and this study rise is a good sign.

The supply of goods to the store is a major issue. Everything must come over land by Turkey. Sometimes it can take 3 months for products to show up. Turkey has levied a 25% customs duty on all goods but Iraq has no customs operations.

City Centre sees important potential in Iraq and we will be opening another even larger market in Sulaimaniyah. Yet, our plans for Baghdad are on hold. The land is in place and we are ready to act to open a store there. But the continuing security situation precludes further work. We had expected that once Sadam Hussien was captured that the violence would subside but this has not happened. The potential of a Baghdad market is reinforced by individuals who come from throughout Iraq, including Baghdad, on the weekend to shop at the Erbil mall, is an indication there is a demand.

Yes, we know that Carrefour is coming to Erbil. But we believe they are late and have made a poor tactical decision with the location and inadequate parking.

We should not focus exclusively on the Majidi Mall in Erbil, however, as there is a significant on-street retail presence of PC shops and systems builders. We visited 5 stores on one street not far from the center of the city. These focused on netbooks and notebooks. Only one of the 5 cited building systems. One of the merchants stated that the mall was impacting his business. Most of the PC accessories including those in City Centre were LG.


Iraq is a market waiting to happen. With a population of 30m and an adult literacy rate of 74.1% there is the potential for significant IT and computer use. There are 5 universities in Baghdad and 9 in the Kurdistan region. It is important to note that the major computer shops in Baghdad are around one of the Universities.

Iraq is second only to Saudi Arabia in proven oil reserves with 112 billion barrels. It is estimated that with the recent opening of the oil fields to foreign companies it can earn $200B a year. The PPP is only 7.7, which is a clear indication that the wealth of the oil production has neither started and/or its flow to the public impeded.

We regard Azerbaijan as a reasonable proxy for Iraq. It has a PPP of 20.1, which is an indication of the spreading of its oil wealth. Our on street view showed the distinct contrast between both Azerbaijan and Iraq in terms of wealth at the consumer level. If the oil wealth is distributed in Iraq and Kurdistan it could fuel a significant rise in consumer spending.

The critical issue to the emergence of Iraq as a consumer power is political stability. It is assumed with political stability the violence will subside. This is clearly possible, as seen in even the recent past, and the populace wants it. This issue remains – WHEN?

As with other countries Iraq mirrors some of the disruptions in the PC market:

  • Mall outlets and large managed retail will set the price and product availability expectations of the market.
  • The buyer preference will be with mobile systems.
  • System builders are on the decline.

But what is unique about Iraq is:

  • Product logistics to deliver to retail outlets.
  • Buyer personal security.

Iraq is a market waiting to happen. City Centre was first and is waiting to reap the rewards of that position.

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Emerging Markets III – Mobile

iPhone Dominates Emerging Markets for SmartPhones not based on Functionality

Cell phones are ubiquitous. Smartphones are not. Countries are different from the US in the role that the carriers play and how consumers buy cell phones. GSM is the world standard. In this context, this reporting sought to understand the role of smartphones and the competitive dynamics around the iPhone.


The phone retail market is a significant business if judged by the number of outlets in many countries. The world is dominated by GSM which also implies a lower linkage between the phone contract or usage and the phone owned by the individual.

These dynamics are directly reflected in retail. We saw many phone shops with walls of phones, mostly behind glass. In all the countries visited the commanding position of Nokia was evident. Nokia has a range of product and the sheer numbers of phones which overshadows the competition.

The positioning of phone accessories was also interesting. In general, the phone stores had more accessories than the operators. What stood out was that the accessories were branded with the brand of the phone. We saw little in the way of independent brand accessories. Thus, there is a strong phone brand identity. Multiple comments were made about which phone brand is best and what is to be avoided. The carriers seemed, from a consumer perspective, much less important that the phone manufacturers.

The small phone shops have also become computer shops and others also camera shops as discussed earlier in converged retail. We also saw xBox 360 in a shop in Baku, Azerbaijan. Many phone stores are a retail point of presence well beyond phones.

It was interesting that the greatest number of phone stores, by a simple measure of stores per block, was in Chisinau, Moldova. Based on another conversation, this country is in the early staged of mass market cellular roll out. However, the stores in the more developed markets were dominated by carriers and looked more like a bank with “pull a number” for service queues.

Overall we saw little penetration of smartphones. A key tipping point we used was the presence of Blackberry phones. These surfaced in Baku, Azerbaijan but we saw little presence in other countries. However, our assessment is not definitive. A sales person in Belgrade, Serbia said the Blackberry is not popular here.

The Google Android phones are making progress. We saw them in Baku, Azerbaijan in a prominent display. A mobile store in Belgrade, Serbia stated that an Android phone from Samsung and HTC costs 1/3 of the iPhone cost. He felt the Samsung phone was the better choice because it came with 1,800 free apps.

The T-Mobile store in Budapest, Hungary was selling Mac computers in addition to the iPhone, with a service arrangement very similar to the US, i.e., a 2 year contract. It is possible to purchase a standalone iPhone but this is expensive and clearly T-Mobile would rather have a contract tied to the phone purchase.

Phone Accessories

iPhone accessories were everywhere. In spite of the fact that no Apple reseller was authorized to be an iPhone outlet they had iPhone accessories. Apple has a strong lead here via the Apple Reseller channel. iPhone accessories were available in stores in countries which did not have a carrier relationship with Apple. On multiple occasions the Apple store managers touted the revenue and margin value of the accessories. But this was not restricted to just Apple brand accessories. The Apple image means that a common look to high quality accessories was present. An example, cited was the Griffin brand.

iPhone Competition

The iPhone provided an excellent context for the smartphone competitive environment.

The consistent messages which resonated in many countries include the following.

  • It was immaterial if the iPhone had an approved carrier in a given country. We found no countries where the iPhone was not in use, the one possible exception maybe Kosovo.
  • There were many ways to get an iPhone.
  • Changing the SIM card was readily done to allow the iPhone to operate on any network.
  • With few exceptions, the primary reason for the purchase of iPhone was as a personal fashion statement. Many paid little attention to the apps. One individual stated it is just a good phone.
  • The costs of purchasing an iPhone boarded on ridiculous – Germany, Kuwait, and others – cite prices of 1000 €.
  • Many of the Apple Premium Resellers would like to sell the iPhone but are restricted due to carrier arrangements or the fact that the iPhone is not authorized in their country.

An Apple Premium Reseller in Sarajevo, Bosnia Herzegovina provided an example of how far buyers will go to get an iPhone.
In Bosnia you cannot have an iTunes account, but in Croatia you can. This serves as a barrier to adoption but many individuals are creating accounts in Croatia to get around the limitation.
This store also sells the iPhone which they import from Italy.

An usual store was visited in Tbilisi, Georgia which sold and serviced only iPhones. There was an extensive stock of phones from Europe and the US – virtually all current models. Behind the counter was a service technical who looked more like a watchmaker taking apart iPhones. All the phones were not authorized but everyone knew who the carrier of choice was to use the iPhones on. The shop sales person called the iPhone a pocket computer.

In Tbilisi, Georgia we saw a young man in a fast food restaurant with an iPhone. He had it carefully turned so that the Apple logo was visible. He likes the iPhone because the phone is good. There are very few apps on it. This was his fashion statement.

A number of resellers stated that iPod sales have fallen off significantly.


The iPad was announced by Apple during this effort. We were surprised at the neutral response to the product. The responses fell into these areas.

  • Lack of functionality. Most cited was the lack of multitasking. Other factors included the lack of a camera and no GPS.
  • A number stated: This will be physically large and remains uncertain what will it be used for.
  • All the Apple stores stated they would carry it but were reserved on how many to stock.

It remains to be seen if the iPad will have the enormous consumer draw the iPhone has. Its ready availability, at least in terms of the WiFi version, could well truncate some of the fashion appeal based on the hard to get iPhone


It is significant that even in markets where the iPhone is not approved for sale it has had an impact. Price does not seem to be a barrier. But the ownership desires are quite different than the US and mature markets. The strength of the phone comes from the image it projects and not from what it does outside of making phone calls.

From a competitive position this presents risks and opportunities. One is to bring to market a phone which has the appeal of the iPhone but at the same time is widely distributed similar to other GSM phones. The Google Android phones are attempting to accomplish this but it is much too early to tell. Its market appeal is based on price.

It is not to be underestimated the role of brand image. Apple has this, Google does not and Microsoft does not. A positive brand image can do much to support sales and gain market share.

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Emerging Markets II – PC Distribution

Disruptions and Competition Shake up the PC Distribution Environment

This examination of the market sought to understand PC distribution and product availability. The proxy for this was to look at Microsoft Windows and Office which are at the center of the PC infrastructure and the same applies in the countries visited. What this reporting sought was to better understand the market dynamics around these products in multiple countries.

Retail Environments

Evaluating the markets for Microsoft Windows and Office is about examining the purchase of PCs. We saw no indication of upgrade purchases of either product so our assessment will focus on the sales of new PCs, with one exception, Kosovo. A few stores had Windows and Office retail packages on the shelf but this was the exception.

The product space consists of:

  • Desktops – custom built PCs
  • Notebooks and
  • Netbooks

The general rules were:

The less developed the market the more the system builders.

The less developed the market the more piracy.

Piracy was open via the system builder channel but it was stated that there are many ways to get “unlicensed” copies of either Windows or Office – on the street, over the Internet or from friends.

Netbook sales in nearly all markets exceeded notebook sales;

Netbooks have become the computer of choice in a number of the markets;

Desktop sales are on the decline and some markets virtually stopped and

The system builder channel is fading.

In terms of the OS loaded on netbooks, and even some notebooks, Windows XP remains and has a strong following. In fact, some of the netbooks are selling with no OS, but this was in the minority. In fact, one store said Windows XP is preferred over Windows 7 due to driver availability issues. There was an overall positive response to Windows 7 and this is increasingly present on mobile computers.

In general, netbooks were not in the system builder channel but in the malls, converged retail and large retail outlets – managed retail. A number of system builders stated they do not like netbooks because the margins are so low, 5% to 15%. One system builder in Tunis, Tunisia cited how Carrefour was selling virtually the same Dell notebook at his cost.

These managed retail stores provide a clean well organized environment to see, touch and buy a computer. A large mall, with the possible exception of Kosovo, was present in every country we evaluated. Thus, the ecosystem is shifting away from the system builder. We have seen this in Taiwan, which, like Hong Kong, was the ultimate system builder environment, as the streets in the PC market areas became populated with notebook stores while the system builders disappeared.

We asked system builders how they are responding to this challenge. The response was uniform: We provide support that the large volume sellers do not. Service is the cornerstone of the business. Yet, many conceded there ranks are being thinned. One system builder in Serbia stated that his store count had gone from 13 to 3 and he expected more to close.

More insights came from an interview with a small system builder in Tunis, Tunisia.
This operation has their own brand for PCs and other products. It has mouse and other products made in China directly for them which provides lower cost and better quality. The individual stated that he goes to China to buy products and supervises the build and quality. But the system builder business is small margin.
Everyone needs a PC here – the old to the young. The internet is everywhere. The iPhone is everywhere but not authorized. This is a tough business.

The limits of a market were demonstrated in Beirut, Lebanon. A PC store opened one year ago in an upper class area of the city with high expectations. Here is what we learned.
The target market was A A+ buyers. We sought to bring the latest technology to the city. Shipments came direct from US and our prices were competitive if not low. For example, we were the first in Lebanon to have the Intel Core I7 processors. We also had gaming stations in the lower level where gamers could try before they bought. We had location, store objectives, target market and products.

BUT this was largely a failure.

Buyers would not spend money. Some came to the shop – looked from the outside and said – I cannot afford this and never came in. The situation was compounded by the down economy and the war here. We were way ahead of the market. So now the stock level is way below what is was when we opened.

There were many examples of the large stores which sold PCs, a few visited during this assessment include:
Media Markt, Budapest, Hungary – superb product depth and selection
Big Bang, Ljubljana, Slovenia – Unique in its sale of Office – Home and Student Edition. Extensive product mix including Apple computers
Carrefour, Tunis, Tunisia – The shopping draw of in all of Tunis
City Centre, Erbil, Iraq – One of a kind in opening a new market.

The power of the hypermarket was very evident in Kuwait City, Kuwait. We went to two: City Centre and Carrefour in the Avenue Mall. This latter was a massive store with an extensive selection of CE products including PCs. Windows retail was on sale but no Microsoft Office. Consumers told us that this is the place to go, especially where there are sales.

There is another significant shift in retail distribution in what we call “Converged Retail.” Generally these are small stores where the anchor products are cell phones and the product mix varied by store. Here is a sample of the spectrum of stores based on size and products carried:

Cellular Carrier – with Netbooks and/or Notebooks for sale or on contract
Small cell phone shop – selling Netbooks, cameras and more.
Large on street store – emphasis on home appliances but including computers, cell phones and televisions

The key distinguishing factor in converged retail is the area of the store – these are far smaller than the large retail outlets in hypermarkets and malls.

When it comes to portable computing we saw an unusual store in Zagreb, Croatia, Mikronis, which only sells notebooks and netbooks. It had a selection that Fry’s would have difficulty in challenging. They had the latest computers, all the major brands and an extensive product mix in a very well laid out environment.

Another anomaly in the retail setting was Dell. There were Dell branded shops in:
Budapest, Hungary
Skopje, Macedonia

These stores were striking when compared to the typical PC store or system builder. They had a strong brand image and the color schemes which fit a Dell look. These were the only PC retail outlets which came close to matching the Apple retail presence.

Retail vs. Internet Shopping

Internet shopping surfaced in a number of countries. This is enabled by:
Credit card availability which can be used for online purchases
Note that some countries require special cards which can be used for non-physical presence purchases.
Confidence in this channel and
Product knowledge and confidence in personal need.

But even if these factors are present the following was stated, many times, as the reasons for in-store purchasing
Customers want to touch, feel, try and talk about what they are considering buying.

Yet it was the youth who are migrating to Internet shopping.

Role of the Internet

The use of the term “Internet Shopping” first surfaced in Riga, Latvia and then appeared in Beirut, Lebanon and Zagreb, Croatia. Two consumers in Riga said:

We do not buy from the retail stores here, it is just too expensive. Virtually all the shopping is done online –“ Internet Shops”. There is an excellent comparison site in Latvia : www.salidzini.lv. Given all this, the major buying is done on eBay where we can buy from any location in the world. A key criteria used, in addition to product and reputation, is free shipping.

This is important, because in the ecosystem model, discussed in issue V, such distribution completely disrupts the Sales Presence and Delivery from most markets. It is difficult to find these buyers because their location of purchase cannot be readily found, and even the consumers may not know.

In Kuwait this form of shopping has become so prevalent that the government has levied a 5% Internet Shopping Customs fee.

There are three factors which support this disruption in the market:
High In-Country prices for goods
Availability of credit cards which can be used for international purchases and
Confidence in on-line buying

Lebanon has some unique culture issues: goods were only delivered by the postal service to PO boxes and banks must issue special credit cards that can be used for non-present purchases. But we spoke to those who have developed ways to circumvent these. However, the VAT, customs duties and fees are making it difficult to gain a net cost advantage over local purchases.

A consumer provided a glimpse of the ends to which individuals will go to accomplish Internet shopping in Kuwait.
I buy off eBay with an account which looks like a US account. To do this I have a US P.O. Box address using Aramex. This company will take anything shipped to this address and reship it to anywhere. I have an American Express card with a Kuwait address but this has been changed to the US address. Now there is a verified PayPal address with payment. As a result I was able to buy and iPhone from Australia, which by law must be unlocked, and got it here to Kuwait faster via Aramex than if there was direct shipping from Australia to Kuwait. This only took 2-3 weeks and I can track the shipment. I also love Amazon.

Credit availability plays a central role in Internet shopping. An interesting cultural context surfaced in Zagreb, Croatia.

Internet buying is done by youth BUT only the older have credit cards. The result is that the children ask to use the credit cards on-line and the parents usually say no. Yet, in the stores most purchases are made with a credit card.

A large retailer in Ljubljana, Slovenia with an extensive stock of computers, stated that Internet shopping has taken off in the last 2 – 3 years and it has become hard for the large retail outlets to compete. The prices are lower because the Internet shops have lower overhead.

From an Ecosystem model perspective we have the following in process:

Large managed retail is decimating the ranks of the system builders:
Cell phone retail is now selling PCs with an impact TBD; and
Internet shopping is decimating brick and mortar retail.

Pristina, Kosovo

Pristina was different. We found no malls and the location reminiscent of Kathmandu in the 1980’s. This was rough hewn but exciting. People were walking everywhere and the streets packed with cars. The only public transportation was by bus. Our first stop was in a computer store which looked very different from those we have been seeing. It was.
Only used computers were being sold. These were shipped from Switzerland and they had 1,000 or more in stock. The computers were name brand late model units which ranged from notebooks to systems to servers and printers. We were told that there was another similar store in Pristina. The dominant market here is in used computers. These machines are completely recycled with an OS which matches the license on the computer.

We found another store which sold just the opposite – new products. They described their business as follows:
We meet the needs of buyers of new computers. These are not the same buyers as those who buy used computers. We build systems but also sell portable systems. Netbooks are selling very well.

Internet is readily available in Kosovo. One can get 60 television channels and broadband Internet for 20 € a month.

Kosovo has the lowest PPP, 3.9, of any of those visited and it is not surprising given its political situation. In spite of these limitations we found the PC sales creative and reflective of the dynamics in Kosovo.


The question to ask was – will you install an unlicensed copy of Microsoft Windows? In Baku, Azerbaijan, Tbilisi, Georgia and Chisinau, Moldova we got an affirmative from system builders. But many conceded that pirated software is readily available on the street, the Internet or friends. A tip off was also the sale of a PC without an OS loaded. An interesting anti-piracy effort surfaced in Serbia, where in a few months, it will be illegal to sell PCs without an OS loaded. But even in the mobile space netbooks are being sold without an OS. When asked, with an unlicensed copy, what happens when the customer wants to update the software? The response was – what updates? In these markets they are not concerned about updating the software – if it is compromised just load pirated another version.

A system builder in Tunis, Tunisia stated it succinctly
The problem is that Microsoft is not offering products at a price the market can afford. If this happened their products would sell and we would not see the current levels of piracy. The price range should be between $20 – $50 for each of Microsoft Windows and Office.



As we walked the streets of these capital cities Apple Premium Reseller stores were found. They provided rich insights on the market conditions, for the PC, Apple and iPhone. As the market assessment continued an effort was made to include these stores. The discussions provided an excellent perspective on the state of competition.

There were three consistent messages coming from the Apple Stores:
“Switchers,” dominate the new Mac buyers. These have left Windows for the Mac.
Typically this was 60% but some cited numbers as low as 40% to 50%. One store in Tunis stated, that after 2 – 3 months of Mac usage the buyers stated they would never go back to Windows.
Windows Vista helped Mac sales.
As one retailer in Riga, Latvia stated “We love Vista – it drove our Mac sales.”
Over the last 2 – 3 years the buyers of Macs have increasingly been populated by consumers.
The decline of the traditional base of artistic professionals is related to the current economic environment, but increasingly the buyers are now the public at large.

Similar to the iPhone, which has a cult like following, the Mac notebooks are also being bought as a fashion statement. In Zagreb, Croatia the store personnel had an interesting observation:
In Croatia it is all about style, personal looks and what you own. Many individuals are heavily in debt and live way beyond means. The iPhone fits this style. One customer purchased an iPod with 16 small monthly payments but the net cost, due to bank fees and interest, was 2X the price of the unit.

Apple drives a consistent look in its stores, this was especially noted in the Premium Releasers. One even stated, Apple sent us pictures on how the store should look.

The Apple resellers loved accessories. In many stores there were literally walls devoted to accessories. Their love was linked to the excellent gross margins.

But it was not all upbeat for these sellers. Some of the issues they cited included:
Lack of support for the needs of the resellers, one in Georgia stated the CIS countries get poor support from Apple. This one cited they were unable to get Apple promotional posters and paid $500 on eBay to get what they needed.
Another stated that the warranty support was poor. It typically takes 2 – 3 months to get a computer repaired and they had to provide loaner machines.
Many cited the slow flow of products and the frustration of keeping new and rapidly selling products in stock.

But they all shared one characteristic – they love apple products. One put it succinctly– Apple products just work.

We found one large retail store in Ljubljana, Slovenia which had both PCs and Macs. The buyers, who get a Microsoft Windows machine are typically those with no computer experience. They seek a computer like most own, which means a Windows PC.

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Emerging Markets I

There is a perception that succeeding in Emerging Markets is just a matter of reduced pricing and adapting to distribution channels. Our experience, having traveled to many countries, that it is much more complex. To evaluate this and other factors the WAVE REPORT went to 19 countries in early 2010. We explored markets related to the PC, software, hardware and mobile. The methodology used was to visit retail locations selling PC and Mobile products, to talk with consumers and sellers and observe what was on sale.

Where did the WAVE REPORT go?

Markets in the capitol cities in these countries, with the exception of Iraq, were evaluated:

Iraq (Erbil)
Slovak Republic
Bosnia & Herzegovina

These countries spanned the regions of Europe, Africa and Middle East. The total population is 38% of the US. The gross domestic product (GDP) at purchasing power parity (PPP) per capita, normalized to the US *100, varied from 3.9 in Kosovo to 83.7 in Kuwait. Iraq is a special case with the largest population of 30.8m, an adult literacy rate of 74.1% and a PPP of only 7.7. Iraq represents one of the most interesting emerging markets and it is reported separately. As we will see, this spectrum of markets was valuable in understanding the buyer ecosystem.

A summary of the engagements includes:

  • Interviews – 74
  • PC Stores – 61
  • System Builders – 31
  • Mobile Stores – 12
  • Consumers – 9
  • Miles Walked – 121.7

This latter figure emphasizes the importance of “feet on the ground.” Stores were discovered and engagements happened which were not planned, they just appeared. Some proved valuable.

Market research in emerging markets is characterized well in “Emerging Markets”, 2nd Edition, Pacek, N and Thorniley, D.

“Market research takes more time in emerging markets than in developed markets and the outcome of intelligence gathering is often disappointing… [managers] should rely more on primary research than on secondary research, whenever possible. Primary research means going straight to the source, in many cases through interviews with potential customers and other companies. Carrying out primary market research in emerging markets is time-consuming and is not cheap.”

This was a process of discovery. When patterns became clear one wanted to draw conclusions and at the next shop or country one would learn more which would frequently disrupt those patterns. This goes back to a tenant of this assessment, Emerging Markets are complex and only by being in them is it possible to discover some of the underlying ecosystem. However, only by living in them, will the full dimension of the market ecosystem be understood.

Key Findings

Market disruptions are being caused by:

  • Malls & Hypermarkets
  • Credit
  • Netbooks
  • Open Software
  • Apple
  • Internet Buying

These disruptions are a part of the market dynamics which reflect how consumers buy products and why. As in many forms of market research, understanding market dynamics is the first step in knowing market behavior. As we shall see the definition of an ecosystem is also very useful.

Uniformly Netbooks are selling well but in the underdeveloped markets Netbooks are enabling computer penetration. These could be well termed the Emerging Market computer. However, in a few markets Notebooks and even systems still dominate.

While Malls are on the decline in the US, this is not the case in every country evaluated. We were amazed to find in Erbil, Iraq the freshly opened Majidi Mall and in it the City Centre HyperMarket from Kuwait. The mall was packed and buyers flocking around aggressively priced computers. The malls and hypermarkets are changing the landscape of how individuals see and buy computers. But it also has important product distribution implications it what has been characterized as Managed Retail.

System builders, in many of the Emerging Markets, were a pathway to privacy. They spoke openly of installing unlicensed versions of the OS and office suite. Yet, the malls and netbooks are decimating their ranks. One system builder had gone from 13 shops to 3 and saw further declines coming. Many of the system builders spoke of the low margin conditions they must exist in. Yet, they are keeping a presence based on customer support. The mall sellers are seen as having poor after sales support and long repair wait times. Another interesting tend, where a few examples were found, is direct product from ODM to System Builder. One such small builder buys components, including mouse products, directly from China. This has the advantage of lowering costs and improving quality, from their perspective. They scoffed at the need for such accessory products by Logitech or Windows products. These are too expensive for their market.

There is not a need be an Apple company owned store for Apple to have a market impact. We assessed numerous Apple resellers. The percentage of switchers, those who switched from Windows to Mac, ranged from 40% to 60% of the buyers of Macs. Most of the resellers cited percentages above 50%. One reseller was blunt in his comment – “Our best sales generator was Vista.” But Apple resellers also have numerous distribution and support issues which the dealers were willing to describe.

The smart phone category is being driven by Apple but not because it is a smartphone. Apple does not need to have an authorized carrier in the market to have an impact. Over and over again it was stated that the buyers of the iPhone did not buy it because of what it did but to have the phone as a “fashion statement.” One consumer interviewed showed his iPhone laying face down on a table just to show the Apple logo. This provides some interesting opportunities in the market. There were many examples where Android based phones are being shown as an alternative to the iPhone but it is too early to tell if these will dent the iPhone presence.

We saw early indications of Internet purchasing having a major impact on the traditional sales and distribution channel. Tracing buyers by geography will be next to impossible. In Kuwait it was stated that the level of Internet buying, and thus the bypass of local sources of supply, had increased to the level that the government has levied a 5% customs duty on Internet purchases. One customer said I buy off of eBay, and she was not unique in this respect, by looking for price and free shipping. She did not care where in the world the product came from. Sophisticated techniques are in use to overcome “ship only to the US restrictions” imposed by many companies and sellers.

This reporting supported the notion that every emerging market is different. To better understand this a consumer ecosystem model was developed and discussed in Emerging Markets report V.

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