Smartphones Too Disruptive for Investors’ Own Good?

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March 1, 2010

Don’t look now, but the winds of change may be blowing within the cell phone and smart phone arena. In the latest research from Gartner, Nokia (NOK) is still the undisputed market share leader, but the company gave up some ground in 2009. Market share fell from 38.6% to 36.4%.

Motorola (MOT) also fell prey to more potent foes, with its wireless market share slipping from 8.7 to 4.8%.

But who took it? Samsung’s market share improved from 16.3% to 19.5%, while LG’s cell phone market shore rose from 8.4% to 10.1%. That could be good news for a few investors were it not for one problem…. neither company has a publicly-traded instrument in the United Sates.

Smart phones made the difference: If the modest shift in market share isn’t alarming to the companies or their investors, it should be. All big trends start out as small ones, and the underlying reasons aren’t always easy to overcome. Such is the case now.

As it turns out, smartphones were at the core of the market share shift last year; smart phone sales were up 24% last year, and up 41% last quarter. They’re only about 14% of the total wireless market now, but clearly closing the gap…. though the gap’s not being closed equally.

Nokia’s smartphone market share actually increased slightly in Q4 of 2009 – the company’s only bright spot last year. Motorola also saw a change of favor with its smartphones, though mostly in thanks to the widespread debut of Google’s (GOOG) Android operating system, which powered the Motorola Droid. Even Apple’s (AAPL) iPhone gave up market share last quarter.

The problem is….: Isn’t that a positive trend for those companies? Looking backwards, yes, but the Droid can only debut once – and Droid’s success may have been more Verizon’s (VZ) doing anyway.

Moreover, Nokia has cut its smartphone launch plans in half for 2010. Why? Not because of its hardware, but because its primary operating system – Symbian – is starting to look less attractive in comparison to Android. Nokia has to go back to the drawing board before it expects to compete with the next generation of smartphones and operating systems.

In other words, things could get worse for those companies before they get better again.

Now and the Future: In the meantime though, the upcoming launch of Google’s Nexus One and Dell’s (DELL) Mini5 (and other smartphones) is going to mean more competition – and less market share per company – when those companies come back to the fast-growing market. So, the increasing popularity of smartphones may not be of any real benefit to any manufacturers. Indeed, it may not be worth it at all; the greater the competition, the lesser the profitability.

Until one of the manufacturers builds something “must have” like the iPhone was three years ago, this may be a game nobody really wins.

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