Apple Inc. (AAPL) & Google Inc (GOOG): The End of the Smartphone Boom

So who’s best positioned going forward?

During the second phase of the technology product cycle, the industry consolidates around a few big players and greater emphasis is put on price rather than innovation.

Google Inc (NASDAQ:GOOG) is well positioned for this shift. Because the company licenses out its operating system to manufacturers, Android handsets have a significant price advantage in the marketplace. They’re attractive to the late adopters. Also, Android is a loss leader for Google Inc (NASDAQ:GOOG). Mobile has always been a way to funnel traffic to the company’s search engine where the real money is. Falling hardware profitability won’t really impact Google Inc (NASDAQ:GOOG)’s financial results.

Apple Inc. (NASDAQ:AAPL) is in a slightly tougher spot. iPhone sales represented 52% of the company’s revenue during the second quarter so slowing sales and declining margins in this segment will have an outsized impact on the company. Now some of those iPhone sales will translate into iPod, iTunes, and app revenue. But it’s hard to see the company’s ecosystem replace all of those smartphone profits unless Apple Inc. (NASDAQ:AAPL) can come up with an entirely new product category (cough, cough, iTV).

For second-tier players like Research In Motion Ltd (NASDAQ:BBRY), Nokia Corporation (ADR) (NYSE:NOK) or other manufacturers, the future looks much worse. Without a well developed product ecosystem behind their handsets, these companies resemble pure-plays in what will become a challenging hardware business.

Rather the next big winner in this space will be a player than can significantly undercut its competitors. I’m talking about Mozilla. The firm’s Firefox OS is much more likely to crave out 10% of the smartphone market than any of the other second-tier players.

Foolish bottom line

Just to be absolutely clear – I’m not predicting the peak in smartphone sales or profits. I’m saying we’re entering the second phase of the product’s expansion which is typically marked by rapidly slowing growth and razor-thin margins. The smartphone is becoming a mature segment and that’s typically a bad thing for technology investors.

The article The End of the Smartphone Boom originally appeared on Fool.com and is written by Robert Baillieul.

Robert Baillieul has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple Inc. (NASDAQ:AAPL) and Google Inc (NASDAQ:GOOG). Robert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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