In the hubbub over demand for Apple's (Nasdaq: AAPL ) new iPhone 4s, investors seem to have forgotten some important news out of Redmond and Helsinki last week. Microsoft (Nasdaq: MSFT ) and Nokia (NYSE: NOK ) are teaming to bring new smartphones to China next year.
Attacking the robot, eating the apple
Right now, all we have is a sketch of what's planned. And that's only because Andy Lees, president of the Windows Phone division, was in Asia speaking at a conference sponsored by The Wall Street Journal. Lees told an attending Journal reporter that Microsoft was going into China "in a big way," with Nokia as a top partner.
Apple and Google (Nasdaq: GOOG ) investors need to see this as more than an idle threat, and not just because Windows Phone is a good alternative OS (which it is). Microsoft isn't just partnering with Nokia in making Windows smartphones for China. Lees also said Mr. Softy is developing relationships with HTC and Samsung.
We don't yet know how these efforts will pan out, but consider this news through the lens of handset market share. Chinese researcher ZDC found that HTC, Nokia, and Samsung combined accounted for close to 70% of the attention of Chinese smartphone shoppers. A similar survey found that 12% were focused on Windows Mobile. Clearly, there's an installed base for Microsoft to sell to.
A big pie getting bigger
Handset brands are likely to lead the way in generating sales -- Chinese consumers seem more attuned to manufacturers that OS suppliers -- but there are also economic forces to consider. Rising regional demand for PCs and related equipment seems to be fueling enthusiasm for smartphones.
IDC predicts that China will become the world's largest smartphone market by 2015. Globally, some 982 million handsets could reach market that year. Can you imagine? Not only is that more than double the number of advanced devices due to ship this year, but it's also more than six times the number of iPhones Apple has sold since the device debuted in 2007.
The end of feature phones
Couple rising demand with the experience Nokia, HTC, and Samsung have manufacturing on a mass scale. While premium brands do command premium prices -- even in China -- Asia remains a hotbed for feature phones manufactured by Mr. Softy's partners. Drop costs enough, effectively ending the need if not the desire to price smartphones at a premium, and you have the makings of a cost advantage that could become a blunt instrument in the fight for market share.
This isn't just wishful thinking, either. Lees told the Journal that smartphone production costs were falling to the point where, by 2015, it should be possible to build one for $100. Think about that. In a market where there's no such thing as a feature phone, an iPhone could quite quickly become unremarkable without some serious software breakthroughs.
Foolish final words
Don't get me wrong; I'm not suggesting that Apple can't or won't innovate. What I'm suggesting is that, when everything's a smartphone, there's going to be a legion of former feature-phone upgraders looking to China Mobile (NYSE: CHL ) and China Unicom (NYSE: CHU ) for a lower-cost alternative that does most of what an iPhone or Android device does. Microsoft can fill that gap, and it can do it in what's soon to be the world's largest mobile market. Don't count Mr. Softy out yet.
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