Android's Fragmentation Is Apple's Opportunity

Daniel is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

In a previous article I took an objective look at Apple's (NASDAQ: AAPL) smartphone growth in China. While Apple's triple digit growth was impressive, it wasn't enough to keep up with Android. In fact, Apple only holds about 5% of China's handset market. Going forward, however, I see Apple's minority marketshare as an enormous opportunity–particularly in light of Android's fragmentation.

China's bolstering smartphone market

China is the hot topic this year for Apple investors. Will Apple finally forge an agreement with the world's largest carrier, China Mobile (NYSE: CHL) and its 700 million subscribers to offer the iPhone? How will Apple thrive in a market of cheaper smartphones?

The growth in China is astounding. Based on past growth trends and some developments in 2013, Kai Fu Lee of Business Insider believes that the China smartphone market will more than double by the end of 2013. Lower smartphone prices and bolstering broadband wireless networks, he explains, will support enormous growth levels in 2013.

Not only is the smartphone market in China growing in terms of units sold, but it also turns out that Chinese customers are willing to spend more money than in the past in order to acquire more advanced phones.

As far as China Mobile goes, I predict there is a very high likelihood that an arrangement will be made. Yes, China Mobile's 3G subscribers amount to just 82.4 million (as a percentage of total subscribers this is far less than smaller competitors China Telecom and China Unicom), but 3G adoption is booming. In November, China's total 3G subscribers grew 88%, year-over-year, to 222 million. If this growth rate is halved in 2013 (I doubt it will be – I'm just trying to be conservative), China 3G subscribers could increase by a whopping 98 million.

In light of competitors' huge gains in the 3G market, China Mobile has every incentive to offer the iPhone.

A fragmented and government-controlled Android offering

Leading the way in China's bolstering 3G market is Google's (NASDAQ: GOOG) Android OS. But it is important to note that even though Google may hold a whopping 86% market share in China, there is a big difference in Android's ecosystem compared to Apple's iOS: Android is highly fragmented–especially in China.

In a study conducted in August 2012, OpenSignal found 3997 distinct devices using the Android system. So any comparison between iOS and Android should acknowledge the fact that Apple's iOS and its hardware are interchangeable while Google's Android can be used on any device.

Furthermore, Android is subject to China's government controls, eliminating Google-based apps like Google Maps, Gmail, and YouTube. In the U.S., these apps play an important role in Google's strategy to connect with customers and increase switching costs.

This fragmented and government-controlled Android offering leaves a crack in Android's armor.

Slow n' steady

In the meantime, Apple is making plenty of progress (and enormous profits while they are at it).

Apple's momentum in China may not be as robust as Android's, but it is still staggering. According to a report by StrategyAnalytics, Apple's smartphone market share has grown from 7.5% at the end of 2011 to 12% just a year later. Apple managed to do all this without lowering the price of its iPhone. 

The bottom line

Apple's success in 2013 is highly dependent on the company's performance in China. But Apple investors shouldn't fret. China's booming smartphone market combined with Android's highly fragmented and government-controlled offering should enable Apple to continue on its current trajectory of triple digit growth in China.



Daniel Sparks has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, China Mobile, and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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