Smartphones had an explosive year in 2012. According to IDC, 219.4 million smartphones were shipped in the fourth quarter, rising 36.4% since the fourth quarter of 2011. Smartphones made up 45.5% of all mobile phone shipments, the highest ever. For the full year, 712.6 million smartphones were shipped in 2012, an increase of 44.1% since 2011. Google's (GOOGL 0.35%) Android OS has benefited tremendously from this explosive growth. Its mobile operating system commanded an astounding 75% market share in the third quarter of 2012. Judging by its most recent earnings announcement, there's no indication that Google's momentum has begun to slow. Is it safe to say that Google has officially won the smartphone war?
Not your average fruit?
Apple (AAPL -0.57%) shipped 47.8 million iPhones in the fourth quarter, which represented a 29.2% year-over-year increase. Although Apple's total numbers are impressive, its year-over-year growth rate has something left to be desired. That's because it's actually far below IDC's fourth-quarter industry growth rate of 36.4%. The fact that Apple grew substantially slower than the overall smartphone market does not bode well for shareholders. In this context, I don't find it surprising that Apple shares were punished after it released its first-quarter earnings results last week.
Samsung, on the other hand, which happens to be the leading Android device manufacturer, grew its year-over-year shipment volume by 76%, handily beating out Apple for the No. 1 smartphone manufacturer spot with 63.7 million units shipped. As a whole, the industry is incredibly slanted toward Android OS, given that fact that four out of the top five smartphone manufacturers in the world utilize Android. Together, these four manufacturers accounted for over 42% of all smartphones shipped in the fourth quarter, which all experienced faster year-over-year growth than the industry. In other words, the Android ecosystem is seen growing faster than the smartphone industry, while Apple is growing slower than the industry. This simple understanding helps justify why Apple's P/E is deeply discounted relative to both Google and the general market.
Tablet wars
IDC estimated that 122.3 million tablets shipped in 2012, driven by robust demand for both Android and iOS devices. Apple's iOS commanded the lion's share with 53.8% of the market, Android came in second place with 42.7% of the market, and Microsoft (MSFT -1.84%) came in third with 2.9% of the market. By 2016, Apple is expected to hold onto 49.7% of the market, Android 39.7%, and Microsoft 10.3%. IDC expects that more than 282 million tablets will ship in 2016.
Moving down market
Emerging markets have become the smartphone's final frontier for massive untapped growth potential. Although Google currently maintains a first-mover advantage, I fully expect the competition to intensify in a race-to-the-bottom standoff in the coming years. Research In Motion is about to release BlackBerry 10 and defend its No. 3 position in mobile OS market share. The company is planning to release six different BlackBerry 10 devices this year, which will cover its bases from the low end of the market to the high end.
Microsoft is reportedly working with Qualcomm (QCOM -1.75%) to develop a Windows Phone 8 reference design, which will be intended for entry-level consumers in China and other emerging markets. Smartphones based on the design are expected to ship by the second half of this year and should help drive emerging-market share growth for Microsoft.
Apple hasn't yet released an iPhone specifically destined for emerging markets. During the company's earnings conference call, CEO Tim Cook acknowledged that the iPhone 4 was supply constrained for the whole quarter, indicating that Apple's cheapest unsubsidized iPhone is still in high demand. At $450 a pop, it's still out of the realm of possibility for many emerging-market customers.
From iThrone to Googleplex
The King of Cupertino has been succeeded by Google, and it appears that Google will remain king for the foreseeable future. The current state of the smartphone industry suggests that a land grab is currently under way within the largely untapped emerging markets. Competition is expected to intensify, which could easily lead to a race-to-the-bottom price war among manufacturers. Although this type of scenario would undoubtedly put pressure on manufacturer profit margins, it puts Google in a unique position to win. It's not important to Google how much profit is made on each smartphone sold, it's important that manufacturers continue supporting Android. That said, Microsoft may become a more sizable threat in the years to come, given its similar OEM-driven model for Windows Phone 8, but for the time being, my money is on Google to remain king.
Editor's note: This article has been updated to remove an incorrect reference to Nokia offering $100 unsubsidized smartphones. The Fool regrets the error.
