The iPhone's Impact on Rivals

(page 2 of 2)

Handset Headaches

Handset makers, currently benefiting from double-digit growth in the overall smartphone market, could have their share of iPhone-related headaches, too. While carriers are the ones that absorb subsidies, they can also step up pressure on their suppliers to cut prices on bulk orders. What's more, if iPhone sales surge as many analysts expect, market share for rival handset makers will erode. Motorola (MOT), which has failed to release many popular phones in recent years, may suffer more than others, says Ross Rubin, director of industry analysis at NPD Group. But Samsung, LG, and even Nokia (NOK) stand to lose as well. "Higher-end fashion phones will be most vulnerable," Rubin says.

Handset makers' software and development costs are also rising as these companies try to catch up with the iPhone's capabilities and graphics. HTC, whose Touch device has sold 3 million units in the past year globally, has developed special 3D menus, which turn looking through a contact's list into an experience similar to flipping through business cards in a Rolodex. "We want to take the touch experience to a new level," says John Wang, chief marketing officer of HTC.

The world's largest handset maker, Nokia, has been investing in Ovi, a suite of mapping, gaming, and photo-sharing Web services for its smartphones likely to better compete with iPhone's software offerings. "We'll continue to bring [new] service lines into the marketplace," says Bill Plummer, a vice-president at Nokia Americas.

Not "Apples to Apples"

How long will the pain last? Hard to tell. It can take years for a blockbuster phone to peak. Motorola's legendary Razr series of phones was introduced in 2004, but didn't reach a crescendo until the first quarter of 2007, when it accounted for 12% of all U.S. cell-phone sales, according to NPD.

Nor will it be easy to determine how well these competing smartphones and iPhone look-alikes will stack up, analysts say. "The thing is, it won't be the iPhone," says Neil Strother, an analyst with JupiterResearch. "You are not comparing apples to apples."

Kharif is a reporter for BusinessWeek.com in Portland, Ore.