Hunting the iPhone killer: Swedish Neonode generates buzz for
`device
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`By jscarbo April 7, 2007
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`Archived Articles
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`Carriers
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`Conventional wisdom has it that since early January, every handset vendor and carrier has scrambled for an answer to the
`you-know-who phone, due in June. Regardless of the handicapping already taking place-who wins, who loses?-Apple Inc.’s
`iPhone has contributed to a shift in the wireless industry’s focus.
`Suddenly, a device’s usability is paramount. Cool? Doh! Make it usable, even fun to play with. What a concept!
`Of course, this thought is neither original nor new, but the appearance of a charmer from another industry has rekindled
`the conversation, partly by injecting fear into incumbents.
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`Neonode Smartphone LLC, Exhibit 2021
`Page 2021 - 1
`IPR2021-00144, Samsung Elecs. Co. Ltd. et al. v. Neonode Smartphone LLC
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`Given product development, manufacturing and testing cycles, however, anyone’s answer to Apple Inc.’s iPhone may be
`lucky to land on
`shelves in time for fourth-quarter, seasonal sales.
`
`iPhone killer?
`What’s out there now, capable of slaying a charming Goliath?
`Many have observed that in some respects, the iPhone simply incorporates technologies such as the touchscreen that have
`been in use in handheld devices for some time. Repositioning one’s product to leverage the buzz created by Apple’s entry
`into the market surely has handset vendors’ marketing and advertising departments working as furiously as their R&D
`teams. And it’s not as if a number of vendors haven’t already brought to market products long in development prior to the
`Apple that dropped onto industry’s head.
`To analyst Rob Enderle, principal at the Enderle Group, the recently announced Prada phone from LG Electronics Co. Ltd.
`and the Ultra F700 handset from Samsung Electronics Co. Ltd. are contenders in this latter category. Sure, Nokia Corp.,
`Motorola Inc. and Sony Ericsson Mobile Communications L.P. can point to their portfolio with arguments for other
`contenders. Yet, Enderle said, another device-the N2 from Neonode Inc.-is the strongest contender for the title of “iPhone
`killer,” a phrase the analyst may have coined.
`It is a mantle any company would love to be associated with, and this tiny Swedish firm, which has toiled for six years on
`the margins of the industry, grabbed Enderle’s remark and ran with it at CTIA Wireless 2007, meeting with anyone who
`would listen.
`“They’ve come out with a kick-ass device,” Enderle said. “But they’re not a company that can scale up to meet demand for
`a hot phone. They’re not a Motorola or a Nokia. This could lend itself to an even higher exclusivity dividend than the
`iPhone, though. These sorts of devices typically drive change.”
`According to Enderle, if the N2 device is successful, Neonode may need to partner with a manufacturer that can fund and
`deliver the device, the company could license its technology to a larger player, or it could present an attractive acquisition
`to one of the Goliaths ruling the industry.
`That’s one whopping “if.” Especially because small, innovative companies tend to ride a dizzying rollercoaster of great ideas
`and the ups-and-downs of practical demands (read: money, partners and scale) endemic to a global industry.
`
`The scoop
`Who the heck is Neonode and what does the N2 offer?
`The company began in 2001 when Magnus Goertz, inventor, co-founder and chairman, sold one company and set his sights
`on creating an innovative wireless device. By the end of the following year, the N1 was announced in prototype, but 18
`months passed before a limited number of the GSM devices were available online. The small device featured a screen and
`no keypad. Instead of a pressure-sensitive touchscreen, the screen reacts to the intuitive passage of a finger over the
`screen to initiate basic phone, Web browser and multimedia functions. Algorithms discern the user’s purpose and screen
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`Neonode Smartphone LLC, Exhibit 2021
`Page 2021 - 2
`IPR2021-00144, Samsung Elecs. Co. Ltd. et al. v. Neonode Smartphone LLC
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`out ham-fingered miscues.
`Suffice it to say, years passed without a market breakthrough as a tri-band model came and went. Fast forward to the
`3GSM World Congress in February: The company presented its N2, a quad-band GSM/GPRS device running a version of
`Windows Mobile with a customized user interface that preserved the initial screen innovation. In March, Mikael Hagman
`came aboard as CEO and president, after eight years as CEO of Sony Corp. in Sweden and Finland.
`Hagman said that the Neonode team met with carriers, device manufacturers and distributors at CTIA last month and is
`readying a market plan for the United States. The N2 is aimed at consumers and its one-hand, one-thumb use continues to
`be its main selling point. Hagman said market studies reveal the strongest interest in the device’s form factor and function
`among young women. The small, light device plays MP3s, uses a miniSD card for storage, offers SMS, MMS, a Bluetooth
`connection, a 2-megapixel camera and four hours of talk time. (The device also offers a Web Radio Recorder client that
`downloads music via a PC.) This reporter did not explore all the device’s functions and analysts who have remain scarce.
`The device will sell for about $533 (including 18 percent tax) in Europe, placing it squarely in the high tier. U.S. pricing
`remains to be seen, likely dependent on whether it launches independently as an unlocked device or gets a carrier deal and
`subsidy. In Europe, only Greece-based distributor MyPhone has stepped forward in an announced distribution and bulk-
`purchase agreement.
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`Financial details
`Thus great idea meets market reality. What about financing?
`Neonode is privately held by its founders, staff and Swedish as well as significant U.S. investors, according to Hagman.
`Neonode has been incorporated in the United States since last year. In June it plans to merge with SBE Inc.-maker of
`Internet-protocol storage systems-in order to obtain a Nasdaq listing. (Neonode has applied for the ticker “NEON.”)
`After six years without significant sales, Neonode must need new funding, right? “Neonode recognizes that pursuing the
`consumer electronics and mobile device market requires funds,” Hagman responded in an e-mail from Stockholm. “Current
`investors are committed to seeing Neonode succeed and the company is well-equipped to raise more funds.”
`Enderle said that much ground remains between an innovation with funding and the market impact required to play among
`giants. “At the end of the day,” Enderle said, “this phone might be much more successful coming from a larger firm. We
`have a number of manufacturers who, if they see the phone is successful, could fund the ramp to meet demand. But these
`things are transitory and it takes time to bring up a line, so there’d be some risk.”
`Secondly, Enderle said, touchscreens have not set the market on fire-a challenge for Apple and, perhaps, for Neonode’s
`light-sensitive approach, which unlike the iPhone provides feedback when an icon or virtual key is activated.
`The good news for the handset industry, the analyst said, is that the iPhone and the N2-assuming its launches in the U.S.-if
`sold at premium prices may awaken American consumers to the actual value of mobile handsets, heretofore subsidized and
`relatively cheap. For handset vendors, the dream going forward focuses on sustaining average selling prices and margins as
`the planet begins or continues making handset replacement purchases.
`Less laden with “ifs” is Enderle’s point that American consumers will have an enormous range of devices, features and
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`Neonode Smartphone LLC, Exhibit 2021
`Page 2021 - 3
`IPR2021-00144, Samsung Elecs. Co. Ltd. et al. v. Neonode Smartphone LLC
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`applications to choose from this year.
`“The battle between these companies will get hot and heavy as we move into the second half,” Enderle said. “That could
`drive interest in more expensive products and garner better margins for everybody. This competition can establish the idea
`of value and, also, exclusivity-‘premium’ as a good thing. So I’d expect more people to buy higher-end phones as a result.”
`The sobering news for Neonode? You’ve got company. A lot of it. “By positioning itself with Cingular/AT&T, Apple has lined
`up all the other carriers against it,” Enderle said. “And every one of those carriers will be looking for an ‘iPhone killer,’
`because they don’t want Cingular/AT&T to get all the traffic. So everyone on the planet is on the hunt for an ‘iPhone killer.’ “
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`Neonode Smartphone LLC, Exhibit 2021
`Page 2021 - 4
`IPR2021-00144, Samsung Elecs. Co. Ltd. et al. v. Neonode Smartphone LLC
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