Apple Inc. (AAPL): The Smartphone Market Is Saturated

The mid-tier sweet spot?

One frontier that might still be open for conquest is the middle of the market — those consumers in developed nations that can’t afford a high-end phone. Many of them might use prepaid plans that don’t offer phone subsidies.

For them, a $200-$300 phone might be ideal. That’s likely the demographic Apple Inc. (NASDAQ:AAPL) will be targeting with its rumored budget, plastic iPhone. MacRumors speculates that the upcoming phone will be priced at $300 — far too expensive for the developing market, but ideal for a U.S. consumer on Virgin Mobile.

This might also be the market Google Inc (NASDAQ:GOOG)’s Motorola is targeting with its upcoming Moto X. Until recently, the Moto X was widely expected to be a flagship handset. However, some reports have claimed that the phone will retail for $200-$300.

Unless Google opts to heavily subsidize the phone (possible), it will likely go head to head with Apple’s budget iPhone for the mid tier market.

While Motorola is a small part of Google Inc (NASDAQ:GOOG)’s business, the unit has weighed on Google’s shares since the acquisition, costing the company several hundred million dollars per quarter. But, a well-received Moto X could turn the Motorola unit from an asset to a liability, and help justify Google Inc (NASDAQ:GOOG)’s above average multiple.

Investing in the smartphone space

Smart investors have been able to make a fortune in smartphone names over the last few years, but the party may be over. Although these stocks might not be the worst investments, their ability to return outsized gains seems limited in light of the market’s saturated state.

If there’s any profitable growth left, it will be found in the middle — those phones priced around $200-$300. Google’s Moto X and Apple Inc. (NASDAQ:AAPL)’s plastic iPhone could capitalize best on that space.

At any rate, investors looking for the next great growth story should look elsewhere.

The article The Smartphone Market Is Saturated originally appeared on Fool.com and is written by Salvatore “Sam” Mattera.

Joe Kurtz has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple and Google. Salvatore “Sam” 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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