Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



As The Smartphone Market Splits, Google Wins

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

Most of the pundits arguing about the future of the smartphone market seem to think of it as one giant pie for the likes of Apple (Nasdaq: AAPL  ) , Google (Nasdaq: GOOG  ) , Nokia (NYSE: NOK  ) , and Research in Motion (Nasdaq: RIMM  ) to fight over. But in the aftermath of RIM's earnings report last week, it looks more like a layer cake to me. And for now, Google's Android stands the best chance of getting a big piece of both layers.

What RIM tells us
RIM's numbers didn't set too well with Mr. Market, as revenues and unit shipments both came in slightly below analyst estimates, and the average selling price (ASP) for the company's phones continued to drop. But it would be a mistake to assume that RIM's weakness was spread out over all of its key geographic regions and product lines. Instead, the weakness was centered around the U.S. market, and especially RIM's high-end Storm2 phone, which has had an underwhelming debut with Verizon (NYSE: VZ  ) -- I'm sure that Palm (Nasdaq: PALM  ) sent its condolences.

On the other hand, RIM's international sales appeared very healthy -- a report from T.D. Newcrest analyst Chris Umiastowski estimated that while revenues from North America declined 15% sequentially, sales to other markets were up 36%. Furthermore, all signs pointed to strong shipments of RIM's mid-range Curve smartphones.

A market split
Combine RIM's results with Nokia's Q4 numbers, which also saw a combination of lukewarm high-end smartphone sales and stronger demand for cheaper models, an image appears of a smartphone market that's split into two segments.

On one side, you have platforms who are generating most of their sales from costlier devices featuring large touchscreens and powerful processors, and whose users are prone to downloading apps by the dozen. The iPhone is obviously the king of the hill here, but Google's Android is quickly gaining share. Sales of these phones are heavily tilted toward wealthier markets such as the U.S., Western Europe, and Japan, where consumers can either afford to buy the phones outright, or can afford the costly service plans needed to buy one at a heavily subsidized price.

On the other side, you have platforms whose most popular hardware tends to be cheaper devices that often lack touchscreens, and whose users tend to care less about downloading apps than about having the phone do a couple of things well, such as handle email or play music. RIM's Blackberries and Nokia's Symbian phones are the biggest players here, and compared with the high-end segment, there's a greater balance in this space between sales to developed and developing markets.

Why Android benefits
So how does Google gain from this market split? It's simple: While RIM and Nokia haven't yet shown that they can hold their own against Apple and Google in the high-end touchscreen space, and while Apple seems disinterested in putting its brand and $620 ASP at risk by offering a low-cost iPhone model, there are signs that the open-source Android can bridge the gulf between the high-end and low-end spheres.

Though high-end Android phones such as Motorola's (NYSE: MOT  ) Droid and Google's Nexus One have grabbed most of the headlines, cheaper hardware has also been released, such as HTC's Click and Samsung's Galaxy Lite. And in China, we've seen Android launches not just from the likes of Motorola, Samsung, and Dell, but also from "grey market" manufacturers targeting price-conscious consumers both inside China and overseas. A quick Google Shopping search turned up several Android phones from Chinese manufacturers selling for less than $200 without a contract. And from the looks of things, the Chinese government's fight with Google isn't going to affect Android's availability within the country.

Meanwhile, if the tech sector's history teaches us anything, it's that hardware gets cheaper over time. As prices for displays, processors, flash memory, and touchscreen modules gradually decline, Android phones should get cheaper still. And as the platform further penetrates the low-end, it should stand alone in giving developers a chance to sell apps both to smartphone enthusiasts looking for a device filled with bells and whistles, and to the less affluent users around the world trying to get a touchscreen smartphone at a reasonable price. That, in turn, should boost Android's ability to eat into the iPhone's current app lead.

None of this is to say that Google is going to eat everyone's lunch. Apple, RIM, and Nokia's current strengths go without saying, and the global smartphone market is too big and diverse for one platform to easily tower over it. But it would be a huge mistake to underestimate what Google's accomplishing right now with its open-source approach to Android, and the huge and growing lineup of hardware partners that this approach has produced. Right now, Android phones can be used by American carriers in marketing campaigns bashing the iPhone, and they can be offered in third-world bazaars as an alternative to Nokia's low-cost Symbian gear.

Until a competitor proves that it can do the same, this kind of versatility is going to pay off very well for Google.

Have any thoughts on the smartphone market fracturing into a top and low end market? Share your thoughts in the comments area below.

Fool contributor Eric Jhonsa has no position in any of the companies mentioned. Nokia is a Motley Fool Inside Value selection. Google is a Motley Fool Rule Breakers pick. Apple is a Motley Fool Stock Advisor recommendation. Try any of our Foolish newsletters today, free for 30 days. The Fool has a disclosure policy.

Read/Post Comments (2) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 07, 2010, at 4:46 PM, Rondan wrote:

    What this article doesn't mention is that the various manufacturers who use android overlay their own software, on their own different hardware specifications, and different versions of android.

    Because of these huge differences each android phone may not be able to run certain apps or will run apps differently. They are not equal nor is their one easy universal android software upgrade path.

    As soon as smart phone users figure this out they will be less inclined to buy an android product and more inclined to buy a smart phone from a company that has 170,000 apps available and makes and designs the smart phone hardware and software; provides a universal upgrade path; so that the phone runs seamlessly.

  • Report this Comment On April 08, 2010, at 12:51 PM, gman5556 wrote:

    I would prefer a product that can be custom tailored to me and my needs especially if I were a manager of a large organization that needs to provide these phones for my work force. I can then have the software custom tailored to include certain programs that are only specific to my organization. Most importantly, I want to accomplish this without having to ask for permission from the developer and then wait on them to actually make it. And I wouldn't need to worry about updates as much because eventually I can have these updates completed in house or pay to have them done whenever I want, basically exactly how I want, without having to wait on the developer, custom tailored to my needs.

    Besides, in the midst of 170,000 apps, I am looking for a single Widget that will utilize VOIP to make calls and have a strictly data only plan instead of telephone usage + data plan for my own personal usage.

    Not to say Apple will never accomplish these things, however I feel when it comes to development Apple has an authoritarian view point where as Google is more democratic. It is a matter of pride: Apple claims to be king and that no one can build or develop products/programs better than they can. Google takes a much more humble approach: they don't know what every individual wants and they will never be able to figure it out as tastes are extremely dynamic. With the Open Source approach, Google is not bound to tastes as whatever the current trend is, be it 5 years from now or 10 years, the end users will always be in control of the development.

    Apple persona: If you build it they will come.

    Google persona: We don't know what you are looking for but we will always be there to help you find whatever it is and help you develop it however you want.

    Apple dictates to users how to use their products, the users dictate to Google how they want to use the product. I think over the very long run, the latter approach will win. Apple is very lucky to have Steve Jobs as he is very in tune with consumer tastes, but what will happen to Apple after Steve Jobs? Eventually someone will come in who doesn't understand what consumers want. With their authoritarian approach, a single instance of a poor CEO can destroy the company. Google in turn will (I stress the word WILL here because it is in the works but not yet accomplished) not rely on a single person's genius, they will rely on the imagination and combined genius of its users.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1146112, ~/Articles/ArticleHandler.aspx, 10/21/2016 10:12:06 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 56 minutes ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 4:00 PM
GOOGL $824.06 Up +2.43 +0.30%
Alphabet (A shares… CAPS Rating: *****
AAPL $116.60 Down -0.46 -0.39%
Apple CAPS Rating: ****
BBRY $7.37 Down -0.11 -1.47%
BlackBerry CAPS Rating: *
MSI $73.62 Up +0.05 +0.07%
Motorola Solutions CAPS Rating: ***
NOK $4.92 Down -0.08 -1.60%
Nokia CAPS Rating: **
PALM.DL2 $5.69 Down +0.00 +0.00%
Palm CAPS Rating: *
VZ $48.20 Down -0.94 -1.91%
Verizon Communicat… CAPS Rating: ****