Will the iPhone Stay on the Path of Growth?

When it comes to smartphones, the battle is between Apple (s AAPL), Samsung and RIM (s RIMM) as they try to chase down Nokia (s NOK), currently the largest smartphone seller in the world. According to data released by research firm Strategy Analytics, more than 94 million smartphones were sold in the fourth quarter of 2010.

Nokia, which has started seeing renewed demand for its smartphones, thanks to the release of newer models such as the N9, is not completely out of the woods. The company has failed to get a toehold in the U.S. In Europe too, it’s facing enhanced competition from the likes of HTC and Samsung, which are selling Android-based (s goog) phones.

However, the story for 2011 is going to be the iPhone. Or rather, how big a market share Apple can get out of the global smartphone business. During the fourth quarter of 2010, Apple logged 89 percent year-over-year growth and now has about 17.2 percent of the total smart phone market.

Neil Mawston, Director at Strategy Analytics, added, “Global smart phone shipments reached 293 million units during full-year 2010, almost doubling from 151 million in 2008 and 175 million in 2009, highlighting the rapid growth of this high-value segment. The big three hardware vendors of Nokia, RIM and Apple were less dominant in 2010, as their combined global market share slipped from 73 percent in 2009 to 67 percent in 2010, mostly due to a spike in Android vendors such as Samsung, Motorola (s mmi), HTC and Sony Ericsson.

Many believe that with the availability of newer, cooler Android devices (at more affordable prices), Apple might no longer experience the wild growth it experienced in first three years of the iPhone availability.

I kind of disagree and believe  the availability of the CDMA version of the iPhone, which is being sold by carriers in India, China and South Korea in addition to Verizon Wireless (s vz), will bring a new growth opportunity for the company. The availability of the iPhone will likely limit opportunities for RIM and Motorola on the Verizon network. With the increasing scale, Apple would also become more efficient and contain costs.

In addition, I don’t believe the Android ecosystem will grow at the expense of the iPhone. What we’re seeing is a shift from essentially old click-and-call, non-touch phone paradigm to a touch-driven, Internet and app-centric mobile interface. This shift means we’re going to see a massive number of old phones being replaced by more modern devices — which means both Apple and the Android ecosystem are going to continue growing — probably at the expense of Nokia and RIM.

Even within the Android ecosystem, the winners are going to be players with scale — Samsung, for example — who are going to continue to gain while others such as Motorola, Sony Ericsson (s sne) (s eric) and LG will continue to struggle and eventually find them on the wrong side of history. As I pointed out earlier, the smart phone winners are companies which have scale and are vertically integrated.

According to the Gartner Group research firm, in terms of dollars, Apple is the third largest chip buying equipment maker in the world after Hewlett-Packard ( s hpq) and Samsung: Apple snapped up $12.43 billion worth of chips in 2010. That’s about 65 percent more than the $7.52 billion it spent on chips in 2009 when it was ranked as the No. 4 buyer.

That kind of purchasing power ensures Apple maintains an edge over its rivals, especially as supplies for products such as display components tighten. I guess the only company which is able to (and most likely will) compete with Apple effectively is Samsung, which has a vertically integrated supply chain – it makes chips, memory, displays and even owns manufacturing facilities to assemble devices. (from Apple’s iPad Is Everywhere)

With an average selling price of $625 and 29 percent EBIT margins, Apple has a massive monetary advantage, and the company can afford to introduce a lower priced iPhone model at some point in the future, targeting more budget minded smart phone buyers and thus find new growth opportunities.

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