The Smartphone War Heats Up: Verizon Backs Microsoft Against Apple
Andrés is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It’s always amazing how investors can remarkably change their mind in short periods of time. A few weeks ago it seemed like people couldn´t wait to buy more shares of the powerful Apple (NASDAQ: AAPL), and the financial press has been salivating all over Apple and its fantastic products. But Apple has been underperforming the markets lately, and it even saw declines in days of relatively good market performance. Is the best over for Apple or are these dips buying opportunities?
There are some concrete news which could affect Apple lately, Verizon (NYSE: VZ) for example says it’s planning to bring more support to smart phones operated with Windows Phone, particularly the Nokia Lumia, which is a partnership between Nokia (NYSE: NOK)and Microsoft (NASDAQ: MSFT). According to New York Post:
“It is important that there is a third ecosystem that is brought into the mix here, and we are fully supportive of that with Microsoft,” said Verizon Wireless CFO Fran Shammo.
This doesn´t mean any immediate threat for Apple. The Nokia Lumia is a new product which has not proven its success in the market yet. It won´t be easy for Microsoft to push gadgets operated with the Windows Phone since Apple and Google (NASDAQ: GOOG) are the two clear leaders in the industry and their products have enormous ecosystems around them.
Customers choose smartphones with a high variety and quality of applications, and apps developers like to work for those platforms with a lot of users, so it won´t be easy for Microsoft to earn market share in the business, even if the new products have received some positive reviews. Verizon´s decision, however, exposes a real problem for Apple: its dependence on a highly subsidized smartphone market.
Carriers like Verizon sell the iPhone at very low profit margins or even at a loss while hoping to recover their investment with more expensive data plans. That´s clearly a big advantage for Apple since the iPhone is the most expensive smartphone, but a big part of that cost is paid by carriers and not clients.
In countries in which carriers don´t subsidize the iPhone, Google´s Android has a much higher market share versus the iPhone, and the fact that different carriers have been complaining about the cost of the iPhone makes some investors wonder if Apple is about to start seeing much lower growth rates due to carriers deciding to bring more support to Android and Windows operated smartphones.
It´s too soon to tell if teh Windows Phone can be of any real danger to Apple, but Android has big chances of continuing its rise in the following years. As the smartphone industry moves into emerging markets and carriers start prioritizing other alternatives it would be no surprise at all to see Google gaining market share. Android is an open platform and that means it can be used in phones with different quality and price spectrum, that naturaly makes Android much more flexible and better positioned for growth in different market segments.
So, what should Apple do to fight this trend? The company has operating margins well above 30%, so it clearly has some room to lower prices, but Apple should probably not worry too much about such things.
It would only be natural if Android or other lower cost platforms gained some market share in the smart phone business during the following years. And Apple should keep focusing on providing high quality products with integrated hardware and software and unique designs.
When a company has the high end product in a market, it doesn´t need the highest market share. As long as Apple keeps developing the best- or coolest - products in the market, the company and its shareholders will do better than fine. It looks like reality may be catching up to Apple when it comes to market share, but that´s no reason to sell the stock, better yet it may provide some opportunities to buy the dips.
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