Android Phones Killing Smartphone Market Profits

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The Smartphone market could soon follow the flat panel TV market where vendors are struggling to make a profit claims analyst. The one exception claim Analysts will be the Apple iPhone.

The smartphone market could soon follow the flat panel TV market where vendors are struggling to make a profit. The one exception claim Analysts will be the Apple iPhone.

Commoditisation of Android offering in the Smartphone market is leading to low profits claims Needham & Company’s Charlie Wolf who told investors last week that the smartphone market is at a critical point at the moment, driven by the flood of Android devices and the recent arrival of Windows Phone 7.

Wolf feels the Windows Phone 7 will gain some market share in 2011, at the expense of Android.  However several analysts disagree claiming that the only way that Microsoft will grow market share is by “buying” shelf space with carriers like Telstra who are being offered big incentives to stock the Microsoft Smartphone offering.

Wolfe claims that Android moved “into a vacuum created by the implosion of Windows Mobile” and that Microsoft will not give up trying to win that market share back.
 He claims that the Google platform will become “horribly fragmented” as vendor after vendors attempts to grab market share with an Android Smartphone offering.

Ultimately, says Wolf, “commoditisation, accompanied by deteriorating prices and gross margins appears inevitable for licensees of the Android and Windows Phone 7 operating systems.”

This argument is something we’ve discussed before in relation to e-readers. While Amazon led the way into this new market with the Kindle, a host of other makers arrived and the price of e-readers quickly tumbled in a race to the bottom. The fast followers tended not to have as powerful an ecosystem as Amazon’s, though in some cases their technology may be better. Amazon has failed to innovate with the Kindle, which now finds itself facing strong competition from the iPad. 2011 may see the e-reader quickly relegated to fringe-device status.

Wolf’s prediction for the smartphone business is similar, with one important difference: He thinks Apple may be the “last man standing” in the profitable smartphone game.
Apple has continually innovated the iPhone since its arrival, and has made no effort to shift its premium device status (though it has kept last-generation technology on sale to entice lower-budget consumers).

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