Has Google Officially Won the Smartphone War?

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 (NASDAQ: GOOGL  ) 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
(NASDAQ: AAPL  ) 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 (NASDAQ: MSFT  ) 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 (NASDAQ: QCOM  ) 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.

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Editor's note: This article has been updated to remove an incorrect reference to Nokia offering $100 unsubsidized smartphones. The Fool regrets the error.


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  • Report this Comment On January 28, 2013, at 7:34 PM, marv08 wrote:

    "This simple understanding helps justify why Apple's P/E is deeply discounted relative to both Google and the general market."

    That's why Karl Malden always called you "Junior"...

    Look up "market share". Look up "profit". Then try again.

  • Report this Comment On January 28, 2013, at 9:38 PM, jdmeck wrote:

    Not even close.

  • Report this Comment On January 28, 2013, at 10:05 PM, TimmyBee123 wrote:

    Yes, Google has officially won the smartphone wars, literally.

  • Report this Comment On January 28, 2013, at 10:54 PM, JesusQuintanaJr wrote:

    What is so hard to grasp that marketshare is a very, very lame way to measure the smartphone environment? Though people in the developed work think of the Galaxy SIII when they think of Samsung, the truth of the matter is that more than 2/3's of their sales are of the much humbler variety. Phones like the Star which can be bought for less than $100.

    Has Toyota won the car war versus BMW because they sell far more cars? I don't think so. Likewise, all this talk that Google won the smartphone war because people in India and China buy 100's of millions of devices that are absurdly cheap and little more than a touch screen with a browser is incredibly shallow thinking. Apple still owns the usage studies and that is the metric they use to measure their performance. And those are the people developers are targeting.

  • Report this Comment On January 29, 2013, at 5:47 AM, H3D wrote:

    "Has Google Officially Won the Smartphone War?"

    Try asking questions that actually mean something.

    IBM won the Personal Computer war.

    They won by such a big margin that to celebrate they sold the whole business to Lenovo for $1.

    Is that the sort of "Officially Won" that you're asking about?

  • Report this Comment On January 29, 2013, at 5:53 AM, H3D wrote:

    Here is a little thought experiment. Do you remember "thought"?

    If Apple open sourced iOS and gave it away. Google would be nowhere.

    And Apples's position would be better than Google's is now as it would be a very large seller of devices, which Google isn't.

    But Apple are better off not doing that.

    So how can Google have won anything?

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