Will Apple Need to Re-invent the Phone All Over Again?

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While Tim Cook may have the capability to match Steve Jobs in management efficiency, it remains to be seen whether he can do the same for innovation and the ability to think up market-grabbing product lines.

And that difference is exactly what could come to Apple's (NAS: AAPL) rescue over the next few years as it battles a slew of ever-cheaper smartphones under the Android umbrella. Add to that the Windows smartphone factor and maybe there are real threats on the horizon that Apple needs to think about in the near future.

Why Apple is the best
Apple's truly amazing on the marketing front -- that's a certainty. This company doubled its earnings in 2011, despite that fact that almost all its products, including the iPhone, cater to the premium segment. Given its easy-to-use technology and ability to connect with its customers, it's not hard to understand why Apple is the world's most-valuable organization.

The company's USP seems to be its ownership of virtually everything associated with the iPhone, from the software platform to its beautifully and strategically designed retail stores, most of which have a very high productivity per square foot. The seamless integration that is available across its phones and other products such as the iPad, thanks to the iCloud services, is also another huge plus point. And wireless carriers have actually benefited from offering the iPhone to attract new customers.

But the question remains: Are these enough to stay ahead in a market which is changing by the day, maybe the hour? Let's take a quick look at some of the areas that Apple needs to think about in the near term.

Factors to watch out for

  1. Apple is yet to release a phone which caters to the lower end of the market or even the middle-income group. While that may give it exclusivity, that's where competition could eat at its profits, as phones that match the iPhone's capabilities are increasingly becoming available at less than half the price. If you look around at the stunning range of Samsung smartphones which are tailored to fit every kind of consumer budget, you will understand what I'm trying to say. And when I find that the percentage of smartphones below $200 is set for an almost five-fold increase -- to 24% -- by the year 2016, it does give me something to think about.
  2. The other stark reality Apple will have to contend with is the competition that its iOS software faces versus Google's (NAS: GOOG) Android. What worries me is that while Apple's software is restricted to its own range of phones, market leader Android seems to have proliferated into handsets made by Samsung, LG and Motorola (NYSE; MMI), just to name a few. And again a significantly large proportion of these handsets cost much less than an iPhone.
  3. One-time market leader Nokia (NYS: NOK) is putting up an all-out fight to retain market share as well. It partnered with tech giant Microsoft (NAS: MSFT) to produce the Windows Lumia line of phones. Having announced recent plans for cheaper Lumia phones alongside expansion into areas such as China (which is one of Apple's biggest overseas markets), you never know when consumers might tilt towards the combination of "good to use" and "easy on the pocket." And there seem to be more reasons for it than against, given that most Asian and Latin American economies are slowing down.

Some Foolish last words
Apple iPhone is the smartphone to be seen with, and everyone's still saving up for it, which also makes it the world leader in smartphones. And it's set to grow at an even more phenomenal rate, with some analysts predicting the company is slated to capture around 60% of the industry's total profits this year. But we should also perhaps remember that the day may not be far when a set of consumers might want to take a break from a "mainstream device," something Apple wishes its iPhone to be. And when you look at it from that angle, all that Apple has been doing until now is making innovations on the existing iPhone, not bringing out altogether new phones. The competition certainly has far more to offer.

Apple is certainly a stock worth fighting for, but consider this: The hugely anticipated iPhone 5 might just have features which already exist in a present-day high-end Android smartphone. Is it time for Cupertino to get back to the drawing board once again?

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At the time this article was published Fool contributor Subhadeep Ghose does not own shares of any of the companies mentioned in this article.The Motley Fool owns shares of Apple, Google, and Microsoft.Motley Fool newsletter serviceshave recommended buying shares of Google, Nokia, Apple, and Microsoft; creating a bull call spread position in Microsoft; and creating a bull call spread position in Apple. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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