Android still killing it in shrinking mobile market, but at what cost?

Android is killing in the mobile OS wars. Even as the global mobile market shrinks, there’s no getting around the fact that it’s far and away the most popular smartphone OS on the planet right now.

But that dominance could come at a cost, especially in its all-out battle against Apple’s iOS.

According to tech research company Gartner, smartphone sales accounted for 36.7% of total mobile phone sales and grew 42.7% in the second quarter of 2012. This as the global phone market fell 2.3% from the same time last year.

Here’s where things get really interesting. Android has benefited massively from the growth in the smartphone market. In fact, nearly two-thirds of all the smartphones sold in the second quarter of 2012 shipped with Google’s mobile OS.

The biggest driver of that growth is undoubtedly Samsung, which remains top of the mobile manufacturer pile. The South Korean giant shipped 45.6-million smartphones in the second quarter of 2012 alone, and together with Apple, owns 60% of the global smartphone market. What that boils down to is that smartphones now account for 50.4% of all Samsung mobile devices.

While those figures may seem to augur well for it and Android’s dominance of the market, the situation isn’t quite as simple as it seems.

The simple fact of the matter is that Apple is still making more money than its counterpart. As Daniel Ashdown, a research analyst with Juniper Research, notes: “Apple’s revenues from its ‘mobile division’ continues to remain significantly higher than Samsung’s, even when you take into account the latter’s feature phones.”

Apple’s iPhone revenue was US$22.7-billion in Q1 (US$29.3 billion including the iPad), compared with Samsung’s KRW18.9-trillion (US$17.0 billion) from its entire mobile division. While flagship devices, such as the Samsung Galaxy SII and Galaxy Note, contribute substantial unit volumes, the company’s rise to top spot is evidence of the smartphone’s entry into mass market price points with products like the Galaxy Y.

Android’s market share meanwhile has come off the back of the fact that it’s a free, open source OS that a lot of manufacturers have chosen to adopt. Great for becoming a household name, especially for people buying those relatively cheap smartphones, but not so great for making money.

iOS is closed and proprietary, but Apple isn’t the world’s most valuable company for nothing. While its growth hasn’t been anywhere near as prolific as Android’s it’s not about to go into free fall any time soon either.

Gartner analyst Anshul Gupta reckons the anticipated launch of the iPhone 5 could be a major factor in pushing smartphone sales up again:

“High-profile smartphone launches from key manufacturers such as the anticipated Apple iPhone 5, along with Chinese manufacturers pushing 3G and preparing for major device launches in the second half of 2012, will drive the smartphone market upward. However, feature phones will continue to see pressure.”

Gartner also reckons that the arrival of the iPhone 5 should provide “the greatest upgrade opportunity yet” as the expected new design with a larger screen and likely other stylistic changes to the form factor will certainly make a strong case for iPhone 4 users to upgrade.

The biggest losers in the market meanwhile are still Nokia and BlackBerry. The Finnish company’s mobile phone sales declined 14.8% in the second quarter of 2012. Despite a series of high-profile campaigns, its flagship Lumia devices are still struggling.

“Declining smartphone sales is worsening Nokia’s overall position, as it had already lost the No. 1 position to Samsung in the previous quarter and is facing reduced profitability due to continuous declining sales of premium smartphones,” said Gupta.