The cellular phone space represents one of the most interesting and rapidly changing markets in the technology industry. It is interesting to investigate industry trends that are being increasingly driven by smartphone technology and currently altering global market share dynamics. Market share turmoil also suggests that competitive advantages do exist but can be extremely difficult to hang on to. (Evaluate the past performance before investing in these types of gadget funds. Read Technology Sector Funds.)
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Market Share Stats
In terms of worldwide market share, three firms dominate the market as it stands. The most recent market share statistics from research firm Gartner detail that, as of the end of the first quarter this year, Nokia, Samsung, and LG controlled just over 64% of the market. This broke down to 35%, 20.6%, and 8.6%, respectively. This is followed by Research in Motion and its Blackberry applications, and Sony Ericsson and Motorola, which each control roughly 3% of the market. Apple, with its popular iPhone device, was at 2.7% and, as its phones reach additional global markets, its little wonder that Apple continues to come on strong.
The previous point is important because it indicates that this market is fast-moving and extremely competitive. In other words, competitive and first-mover advantages can be fleeting. Judging by the above market share, it would appear that the top three have the market locked up, but this is hardly the case. It wasn't that long ago that Nokia and Motorola garnered the lion's share of attention as the top two providers. Back in 2007, Nokia controlled 37% of the market and only recently had more than 40% global share. Motorola was number two, due to the popularity of its RAZR device. At the time, Motorola's resurgence was seen as impressive, as Samsung had overtaken Motorolla in 2004 to become the second largest in terms of market position.
Motorola has since fallen to sixth but is in the midst of another comeback, given that many of its new phones use the popular Android operating system that is now owned by Google. Android is proving popular and helping the fortunes of Samsung, Motorola, LG, and Taiwan-based HTC corporation, just to name a few of the major players. Globally, Nokia's Symbian software remains popular, given its leading market share, as does Blackberry, as it caters to the corporate market. (The way trading is conducted is changing rapidly as exchanges turn toward automation. See The Global Electronic Stock Market.)
Not Indicative of Profit Levels
Another important consideration is that market share does not equate to profitability. The best illustration of this phenomenon is Nokia, which remains dominant in terms of market position but has seen profits plummet by a very limited offering of smartphones. This has left the company exposed to high volume but low profit cell phones that focus on only basic data capabilities that smartphones extensively specialize in.
Apple quickly overtook Nokia last year as the most profitable cell phone provider. This success came mostly from Apple's exclusive focus on higher-margin smartphones, and a loyal customer base of true believers that continue to be willing to pay higher prices to possess a trendy but also highly capable smartphone. Returning to how fast-moving the market is, Apple came out of nowhere to earn billions in just a couple of years. Nokia's operating profit margins are at risk of falling into the single digits, though it did recently announce the N8 touch screen smartphone that has received a number of positive reviews.
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Cell Phones Vs. Smartphones
A final discussion centers around the profound impact smartphones are having on industry dynamics. Using the U.S. as an example, Samsung, LG and Motorola are the top three worldwide market share leaders, but Blackberry and Apple innovations continue to dominate the headlines with breakthrough technologies and growth in operating system market share.
Going forward, the market is as unpredictable as ever, given how quickly a new cell phone device or related software can be embraced/dropped by end users. Nokia also remains firmly in control in terms of total market share and has a reasonable chance of becoming successful in the smartphone space, especially outside of the U.S. Blackberry is also a notable mention, with the remaining players offering an interesting mix of high market share. However, the rest don't stand out for their ability to release a must-have mobile device of above-average profitability, given their product offerings are caught in the middle of the market. (If you'd like to save more money, first you'll need to conquer the first step: Coming up with the cash. Refer to Top 6 Mindless Money Wasters.)
The Bottom Line
A common investment disclaimer is that past performance is no guarantee for future trends, and this holds true in the cellular phone space. Right now, Apple is considered the hands-down favorite to continue gaining market share and high profits at a rapid pace. Even RIM, which reported impressive 31% sales growth in its recent quarter, is negatively viewed in the marketplace, as many expect business users to increasingly embrace iPhones and kick their "crackberry" dependency.
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