Android's strong U.S. sales are a wake-up call for Apple, says analyst

Market for iPhone tied to AT&T is saturated, more proof Apple needs to expand to Verizon

Android's strong U.S. sales in the first quarter show that Apple's iPhone, when tied to AT&T, has reached a saturation point, an analyst said today.

Earlier today, retail market research firm NPD Group said that smartphones powered by Google's Android mobile operating system accounted for 28% of all sales during 2010's first three months. That puts Android behind Research in Motion's (RIM) smartphone sales share of 36%, and ahead of Apple's iPhone OS, with 21%.

"That's not saying that Android is kicking iPhone's butt," said Ezra Gottheil, an analyst with Technology Business Research. "It's not like people are switching. There's simply a lot more people available now who can buy an Android phone than can buy an iPhone."

By Gottheil's reckoning, the fact that all Android smartphones are currently outselling the iPhone is no surprise.

"That's your classic technology acquisition curve," he said. "Of those in the U.S. who are interested in an iPhone and willing to put up with AT&T, pretty much all have already bought one," Gottheil added. What's left for Apple -- as long as it's tied to AT&T in its exclusive partnership -- is largely the iPhone replacement market.

NPD recognized as much. "Carrier distribution and promotion have played a crucial role in determining smartphone market share," said Ross Rubin, NPD's executive director of industry analysis, in a statement today. He cited Verizon's buy-one-get-one-free offer that now includes all smartphones, including those powered by Android, as an example.

But the data from NPD should be a wake-up call for Apple, Gottheil said.

"When a different platform gains market share, that's the time when you want to look up and notice that you've reached the limits of your [exclusive] approach," said Gottheil. NPD's numbers are a strong signal that Apple should expand its carrier partnerships to other U.S. providers, he added.

Most analysts expect that Apple will offer the iPhone to Verizon at some point, although they're basing their speculation on little or no hard information. Last week, Brian Marshall, a financial analyst with BroadPoint AmTech predicted that Apple would strike a deal with Verizon early next year , for example, based on the carrier's failure to land the iPad .

"The question is whether Apple will be able to get the same subsidies on a deal with Verizon, or any other non-exclusive deal," said Gottheil. "The AT&T deal has set Apple's standard for subsidy packages around the world, even when they're not exclusive. But I don't know if it can get the same in the U.S. without an exclusive."

NPD's data, which is based on surveys of 150,000 U.S. consumers, is at variance with recently-published market share estimates by others that look at global sales. For instance, research firm IDC said Apple shipped 8.8 million iPhones worldwide in the first quarter, placing third behind Nokia and RIM.

Gottheil noted that while Apple may have saturated the U.S. market for the iPhone, it's doing extremely well elsewhere. "Last month, they said several times that they had really rapid growth [of iPhone sales] outside the U.S.," he said, referring to a conference call where Apple executives outlined the year's first quarter revenues for Wall Street analysts.

During that call, Tim Cook, Apple's chief operating officer, announced that sales to greater China -- mainland China, Hong Kong and Taiwan -- were up more than nine times compared to the same period the year before. Worldwide iPhone sales were up 131% in the first quarter compared to the same three-month stretch in 2009, Cook added.

Long-range, however, analysts have bet on Android. In its annual forecast last October, Gartner put its money on Android as the second-most-popular smartphone operating system by 2012, ahead of the iPhone OS, which will be in fourth place at that point.

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld . Follow Gregg on Twitter at @gkeizer or subscribe to Gregg's RSS feed . His e-mail address is .

Read more about smartphones in Computerworld's Smartphones Knowledge Center.

This story, "Android's strong U.S. sales are a wake-up call for Apple, says analyst" was originally published by Computerworld.

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