The Thorn in the iPhone's Side: Europe

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Right now, good news is in short supply for Apple (NASDAQ: AAPL  ) . Investors haven't been enthused with the announcement of iOS 7, and shares are down almost 24% since the beginning of the year.

But the latest sting to Apple comes from Europe, where the company's iPhone is falling behind Android's ongoing dominance.

Tapping out in Europe
According to IDC, Western European smartphone sales have been slowed by the sluggish economic growth in countries such as Great Britain, Italy, France, Spain and Germany. But even though Western Europe is experiencing the lowest smartphone growth rate since 2004, the Android OS made some big gains -- while Apple fell back.

Android accounted for 70% of smartphone sales in Western Europe in the first quarter of this year, up about 10% from a year ago. Meanwhile, Apple took about 17.8% of smartphone sales over the same time period.

The iPhone's problem in Europe may have more to do with the economy than with features or specs. In April, the CEO of France Telecom SA, Stephane Richard, told Bloomberg that Europeans weren't buying iPhones because the phones are too expensive. "Selling a phone for $600 is getting more and more difficult," he said.

This leads us to the bigger question of whether a cheaper iPhone could be a game-changer in Europe. The rumored device has been viewed as a key component for Apple's success in developing markets, but it appears the company may need it for established markets as well.

The smartphone operating systems that are making the most gains are the ones being sold on more inexpensive devices. According to Kantar Worldpanel data, Windows Phone increased its market share by more than 100% in the U.K. in part because of low-cost Nokia (NYSE: NOK  ) phones such as the 520, 620 and 720. At the same time, Nokia also lost some market share in Italy over the same period because lower-cost Android phones from Sony and LG came to the market.

In developing markets, Nokia will battle cheap Androids with its new Asha line, but it's evident that Android's dominance is hitting both low- and high-end markets. The little green droid takes up 90% of India's smartphone market share, and Europe seems to be moving in the same direction.

Battling on every side
Aside from poor economic conditions and cheap Android phones, Apple is also dealing with archrival Samsung in Europe. According to Kantar, the South Korean company sold 50% of smartphones in Europe during the first quarter of this year. With smartphone penetration nearing critical mass in Europe, it's high time Apple changed its strategy in the region.

This Fool thinks a cheaper iPhone is the best way to gain back some of the lost market share in Europe and start fighting the uphill battle against Android and Samsung. Apple has enjoyed selling millions of iPhones worldwide, but if European smartphone consumers continue moving in the direction they're going now, you can expect Apple to be pushed out even more.

Not finished yet
Though the iPhone may be losing European market share, Apple isn't likely to take the walloping lying down. The new iOS 7 may held turn the tide for the iPhone once it comes out this fall, and an updated iPhone may help push Android back as well.

But what could really change the game for Apple's stock right now is if it releases a completely new product all together. The company has a history of cranking out revolutionary products ... and then creatively destroying them with something better. In the latest Motley Fool report, "Apple Will Destroy Its Greatest Product," you'll learn whether Apple could really disrupt its own iPhones and iPads. Click here now to find out.

Read/Post Comments (4) | Recommend This Article (1)

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 July 10, 2013, at 5:46 AM, Henry3Dogg wrote:

    If people in London are buying anything but iPhones then they keep them well hidden or don't use them.

    Because 90% of the devices I see in use are iPhones.

  • Report this Comment On July 10, 2013, at 5:50 AM, Henry3Dogg wrote:

    "Windows Phone increased its market share by more than 100% in the U.K. in part because of low-cost"

    Its "cheap" because nobody wants it and bring dumped to build share.

    But it's share is tiny.

    That isn't a reason for profitable companies with real market share to do the same.

  • Report this Comment On July 10, 2013, at 6:16 AM, nke1959 wrote:

    Iphone sales are falling off because iphone are too fragile and you cannot get insurance for a cracked screen and apple seem to forget that if one buys something it is theirs and no longer the property of the the phone so as you can insure/replace the screen and allow people to change sims and networks easily and without the aid of an expert and things might change...but don't hold your breath as Apple wish to retain ownership of everything, they only allow you to "borrow " things, for a high price....only marginally better(worse?) than Google and it's affiliates

  • Report this Comment On July 10, 2013, at 7:22 AM, Melci wrote:

    Most Android devices sales are cheap and nasty glorified featurephones as shown by all the usage share figures.

    Apple now has 510 million active app-using iOS devices versus 568 million active Android devices worldwide despite the higher smartphone unit sales marketshare of Android according to Flurry. That's over half a billion *active* iOS devices.

    Apple sold another 205.8 million iOS devices last year.

    Apple is doing fine.

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