Telecom

A Wave of Android Smartphones Outsells Apple


This story has been updated to include a comment from Apple.

A storefront in one of the busiest shopping districts in downtown Portland, Ore., is painted black, with "Droid Does" in large letters over the doors.

Orchestrated by carrier Verizon Wireless, aggressive promotions such as this one for Motorola's (MOT) Droid smartphone, plus a blitz of direct mail, newspaper, and TV ads, and two-for-one deals on Android-powered handsets, lifted first-quarter sales of smartphones based on Google's (GOOG) Android operating system above sales of Apple's (AAPL) iPhone for the first time, market researcher NPD Group reported on May 10.

Android-powered phones accounted for 28 percent of all smartphones sold in the U.S., exceeding Apple's 21 percent share during the quarter, NPD said. Research in Motion's (RIMM) BlackBerry models led the category with a 36 percent share.

Leapfrogging Apple is an important milestone—and not just for Android, an open-source software developed by a consortium of companies led by Google. NPD's report also shows how quickly Verizon Wireless has become a central player in the fast-growing market for the pocket computers known as smartphones. In the first quarter, Verizon customers bought 30 percent of all smartphones sold in the U.S., nearly equaling the 32 percent share of AT&T (T), which has an exclusive contract to sell the iPhone, according to the report. AT&T also sells an Android handset from Motorola and plans to carry an upcoming Android smartphone from Dell (DELL).

Apple spokeswoman Natalie Harrison said in an e-mailed statement on May 11 that NPD's report is "very limited" and based on 150,000 U.S. consumers responding to an online survey. The survey "does not account for the more than 85 million iPhone and iPod touch customers worldwide," she said. The "iPhone has 16.1 percent of the smartphone market and growing, far outselling Android on a worldwide basis," Harrison said, citing data from market researcher IDC.

Verizon no longer seen as desperate

Until recently, Verizon was an also-ran in the smartphone market. It carried the BlackBerry, but didn't have a breakthrough consumer-oriented smartphone to compete with the iPhone. Analysts were calling for Verizon to strike a deal with Apple to distribute the iPhone. Last December, Verizon said it had effected network upgrades that would enable its network to handle extra traffic should Apple decide to expand the number of carriers authorized to sell iPhones.

Last November's launch of the Android-powered Droid improved Verizon's fortunes in the smartphone market. The Droid, with its sleek design and ability to run many downloadable apps—and backed by a highly visible marketing campaign—is helping Verizon catch up. In the past several months, Verizon Wireless has proven that if it does get the iPhone, "it won't be out of some pressing need," says Tavis McCourt, an analyst at Morgan Keegan & Co. (RF), who has an "outperform" rating on Apple shares.

Rising shipments of Android phones could also spur developers to create additional apps for the platform. "Market share is a contributing factor to which operating system developers want to support," says Ross Rubin, executive director of industry analysis at NPD. On Apr. 15, the Android Market app store carried 38,000 applications such as games, calendars, and e-books. Apple's App Store has more than 200,000 apps, the company says.

Android taking share from most

The smartphone market is experiencing a flurry of activity. Apple is expected to introduce a new version of the iPhone this summer. Hewlett-Packard (HPQ) on Apr. 28 announced it would buy Palm (PALM) for $1.2 billion. And Microsoft (MSFT) is expected to release a new smartphone operating system called Windows Phone 7 in the second half of the year. NPD analyst Rubin says consumers aren't likely to hold off on buying iPhones in anticipation of the new model. "We don't tend to see a lot of purchase delay," he says.

In the third quarter of 2009, Android phones claimed only 3 percent of the U.S. smartphone market. In the first quarter, Android phones have taken market share away from Apple, RIM, Microsoft, and Palm, according to NPD. RIM's unit share of U.S. smartphone sales slipped a bit from 37 percent in the fourth quarter, when the Droid and several other Android phones went on sale, to 36 percent in the first quarter, according to NPD. Microsoft Windows' share dropped from 13 percent in the fourth quarter, to 10 percent in the first quarter.

Verizon's Android line up includes Motorola Droid and Devour phones, plus the new Droid Incredible from HTC. "There's no question Apple's done a great job with the iPhone," Verizon Chief Financial Officer John Killian said during the company's first-quarter call with investors on Apr. 22. "But look at our results."


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