Only Two Horses Left in Smartphone Race

HTC, Motorola (NYSE: MMI), LG and Nokia (NYSE: NOK) might as well curtail their efforts in the smartphone arena. The industry has only two companies left with the ongoing opportunity for extremely large sales — Samsung and Apple (NASDAQ: AAPL).

A new study from Strategy Analytics shows that in the fourth quarter Apple shipped 37 million smartphones and overtook Samsung to become once again the world’s number one smartphone vendor by volume. Global sales of smartphones were up 54% to 155 million units. Between Apple and Samsung, sales were almost 74 million for the period — nearly half of the total.

Samsung announced its fourth-quarter earnings about the same time as Strategy Analytics released its figures. Its net income rose 17% over last year’s quarter to $3.6 billion. Over the course of 2011, the South Korean company shipped 300 million handsets. Apple’s recently announced earnings were even more impressive.

The data shows what it is like when an attractive market becomes saturated with the products from one or two companies like Apple and Samsung. Each has clearly demonstrated that it can make substantial money in the market. The same cannot be said of any of their rivals. Nokia just announced its unit sales fell sharply and that it lost $1.4 billion in the fourth quarter as sales fell 21%. It will rely on its new Lumia smartphone. While early sales have been encouraging, they are dwarfed by the market’s two leaders.

There is almost always hope among the third, fourth, fifth and perhaps sixth place companies, in many industries, that want to please investors with strong market share. The other contenders will continue to spend billion of dollars in the smartphone sector as they hope to climb the market share ladder. But Apple and Samsung have proved that consumers want their products and not the products of rivals. This gives the two companies strength beyond numbers. Product popularity usually leads to profits. Wireless carriers are willing to spend more on products from Samsung and Apple — especially Apple.

Other handset manufacturers that want to become part of the top tier in smartphone sales are chasing shadows. The hierarchy in the industry is set. There is no sign that companies other than the two leaders can change that. Trends show that no matter how hard they try or how much money they spend, their efforts continue to fail.

Douglas A. McIntyre