Apple's (AAPL) iPhone 5 launch along with problems associated with the iPhone mapping application have grabbed all of the headlines recently, but the real problem for Apple moving forward might actually be brewing in emerging markets. Could these problems already be spilling over into developed markets? After all, Apple and the iPhone may appear to be on top of the mobile world right now, but competitors on the hardware or operating system front like Google (GOOG), HTC (2498), LG Electronics, Nokia (NOK), Microsoft (MSFT), Research In Motion (RIMM) and Samsung Electronics are still very much in the mobile business - despite all of their problems.
USA Mobile Market Share: Hardware and Operating Systems
To start with, according to the latest mobile market share data from August, Samsung Electronics is actually on top with a 25.7% market share of the U.S. mobile hardware market followed by another Korean handset maker, LG Electronics, with an 18.2% market share and then Apple with a 17.1% market share. In other words, the USA is far from being an Apple nation when it comes to mobile hardware but its also worth noting that only Apple and HTC registered growth for the period between May and August of this year (2.1% and 0.2%, respectively) while Samsung saw no growth and both LG and Motorola registered declines of 0.9% and 0.8% respectively.
On the mobile operating system front, Google's Android operating system is a clear winner with a 52.6% market share followed by Apple with a 34.3% market share, Research In Motion with an 8.3% share, the Windows Phone/Windows Mobile platform with a 3.6% share and Nokia's Symbian with a 0.7% share. And while Google and Apple both registered growth of 1.7% and 2.4% respectively, Research In Motion saw a decline of 3.1% and both the Windows Phone/Windows Mobile platform and Symbian experienced declines of 0.4%.
Apple's Achilles Heel(s): Look at What's Happening in Europe and in Emerging Markets
Of course, the USA is only one mobile market, and while it's probably the most important or lucrative mobile market for the mobile industry, it's a small part of the global picture and that picture is looking increasingly cloudy.
For starters, the debt crisis and recession or depression that is taking hold in Europe is helping Google's Android to crush the competition there. In fact, Google's Android has around two-thirds of the European market and it has increased its share by 20.2% over the past year. It has a stunning 84% market share in Spain.
So why has Android been so successful in Europe? In the case of Spain, the country has an "official" unemployment rate of 25.1% and mobile phones that run on the Android platform are cheap. Hence, that's what hard hit Spaniards and other European consumers are opting to buy. Likewise, the Windows Phone/Windows Mobile operating system has also managed to maintain a 5% market share thanks in part to heavy discounting.
And while the US economy may not (yet) be as bad as the European economy, the so-called recovery has hardly been a boom. That means if things get worse, American consumers, like their European counterparts, could make a sudden and dramatic shift towards cheaper phones on the Android operating system.
Secondly, in emerging markets, Android growth also appears to be surging due to lower prices. For example, in Mexico, Android's market share has grown from 19% to 37% in a year, and in Brazil, it's gone from 20% to 47%, where Android vendors have slashed prices on Android smartphones to well below 300 reals ($148). In contrast, Apple iPhone prices have remained stubbornly high at around 2,000 to 3,000 reals ($986 to $1,480) for a handset and 1,200 reals ($592) for a subsidized model. That means the Apple iPhone only appeals to the small (but rapidly growing) middle class and to the wealthy in emerging markets.
Moreover, Samsung is pumping out so many smartphones in emerging markets that it will be inevitable that they will gain sourcing and production advantages that will allow them to slash prices even further and gain even more market share and economies of scale. That means Apple may soon find itself forced to make difficult and expensive decisions about which emerging markets to compete full force in and which to scale back in, because after all, Apple executives have to worry about profits and share prices - especially given how much Wall Street can punish a stock whose performance fails to meet their high expectations.
While litigation may keep Samsung at bay in developed mobile markets like the USA (because after all, it's a Korean company and the lawsuit was brought up on Apple's home turf in San Jose), the same tactic may not work on another home grown Silicon Valley company like Google. Then again, Apple could use its clout and lawsuits to intimidate handset makers who use the Android platform, but even that is hardly a tactic that will work as a long term business strategy.
A Final Word on Apple: Remember Nokia and Research in Motion
It's worth mentioning that Apple is scheduled to report earnings on Monday October 15th, and it will be interesting to listen to any management commentary regarding the iPhone 5 launch along with any figures that could indicate early market share or market share gains for the iPhone at the expense of other mobile players. However, Apple's future may lie in part with things beyond its control, like the economy finally getting better both in Europe and the USA. Plus, it needs to figure out a way to remain competitive on the pricing front in rapidly growing emerging markets without ceding the advantage to upstart Asian competitors like Samsung (basically what the U.S. auto industry did).
Likewise, investors in Apple should remember that it was not long ago when both Nokia and Research in Motion were on top of the mobile world only to be sideswiped by the competition - namely Apple's iPhone and Google's Android operating system.