Google Trounces Nokia in Smartphone Battle

In the past two years, Nokia’s (NYSE:NOK) share of the smartphone market in Western Europe has declined from 55% to just 11%, and its shipments have declined by 50%, despite a market boom for smartphones.

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While the Apple’s (NASDAQ:AAPL) iPhone has become one of the hottest smartphones in the world, it’s been phones using Google’s (NASDAQ:GOOG) Android operating system that have stolen the majority of Nokia’s share of the market. Sales of Apple’s iPhone have been relatively steady since the second quarter of 2009, while cheaper Android phones have thrived, with shipments of phones using Android growing 379% year-over-year in the second quarter of 2011. Android phones now account for roughly 48% of all global smartphone shipments.

While companies like LG, Samsung, and Motorola (NYSE:MMI) use the Android OS on their smartphones, companies like Research in Motion (NASDAQ:RIMM), which manufactures BlackBerry phones, rely on their own software to run their smartphones, which would explain why RIM’s share of the North American market fell from 33% in the second quarter of 2010 to just 12% in the most recent quarter. And Nokia has been using Microsoft’s (NASDAQ:MSFT) Windows Phone 7 OS, which has less than a 5% share of the smartphone market.

While Apple maintains a significant share of global markets, Android has doing the real damage to competitors over the last couple years. But with rumors circulating that Apple could soon release a lower-cost version of its iPhone, the tables could soon turn. While Android might be the most popular operating system, the iPhone is the most popular phone, but has always been on the more expensive side, allowing cheaper Android phones to dominate the lower-end smartphone market.

Until now, Apple has been limited to customers willing to spend more — it’s cheapest iPhone costs $199 when purchased with a 2-year voice and data plan through Verizon (NYSE:VZ) or AT&T (NYSE:T) in the U.S — but news that a new iPhone 4 with a smaller 8 gigabyte flash drive (the current introductory-level iPhone has 16 gigs) could be available as soon as October means Apple may soon break into an as yet untouched part of the smartphone market. If so, even the mighty Google should watch its back, because pricing has always been the main factor preventing Apple from world domination.

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Google already seems to be rising to the challenge. Last week, Google announced that it would purchase Motorola Mobility (NYSE:MMI), acquiring the company’s thousands of mobile patents, but also its phone developer. While Google would benefit to continue offering Android as an open-source operating system, it could better promote its own services and have more control over the success of Android by creating its own Android-powered phones, thus involving itself in every aspect of the market. Whether Google will be able to work its magic on Motorola remains to be seen, but there’s no doubt that the only real competitors in the market are Google and Apple. For now, everyone else is on the sidelines.

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