Android Phones Headed for Cheap Seats, Says Schmidt

Google's Eric Schmidt sees Android smartphones headed to the feature phone price point of $70. Should carriers and OEMs be concerned by diminishing hardware returns?

Google Executive Chairman Eric Schmidt excited the Mobile World Congress audience last week when he discussed how Android smartphones would be getting cheaper and cheaper in the next couple years.

Thanks to Moore's Law, smartphones are becoming like feature phones€”commodity products in a commodity-driven world always looking for the next big thing. Schmidt sees Android set prices coming down to the $100 to $150 range from $200 to $400 in 2013, and then even down to the $70 feature phone price point a year or two after that.

The news caught the attention of Ovum Research analyst Tony Cripps, who noted in a research note Feb. 29:

"Schmidt's expectation that Android smartphones will be available between $100-$150 by next year already looks inevitable and will begin to redefine the handset market as a whole. The eventual goal of seeing the price of Android devices brought down into the $70 range also looks realistic to us with the advancement of technology and huge economies of scale that are starting to drive the Android economy."

This emerging trend begs the question: Should the network operators and android OEMs, which together make money on the hardware sales, push back against the $70 smartphone trend that threatens to nibble at their bottom lines? No, said analysts.

"Nokia Symbian is already shipping phones at this level," Gartner analyst Ken Dulaney told eWEEK. "There will always be a variety with differing features. As long as consumers will spend $400 on Nike shoes, then there will be people who spend $200 on phones. And they will market the high end ones because that is where the profit comes from, just like in shoes."

But won't the commoditization of components, just as with PCs, wither phone hardware margins? Not according to Current Analysis analyst Avi Greengart.

"Nokia makes good margins on its entry-level feature phones, so it is certainly possible to make money there as that market slowly transitions to smartphones over time," Greengart told eWEEK.

"Of course, one way to ensure your margins stay high is not to enter markets unless you can maintain high margins€”that has been Apple's approach. Apple is slowly pushing down into lower price tiers, but is doing so at its own pace and is not chasing market share or unit volumes if it can't get the margins it wants."

Greengart further argued that carriers should welcome broadening the smartphone market because it allows them to push data plans to consumers who could not afford smartphones at higher device price points.

Of course, this is all great news for Google, which would just as soon have carriers give handsets away for free so more of them get into the hands of consumers.

More smartphones in the hands of consumers means more mobile ads served to those consumers. Indeed, Piper Jaffray analyst Gene Munster already sees Google's Android business booming to $4.5 billion in 2012, up 80 percent from the 2011 total.

As Cripps noted: Android's astonishing growth so far may well look modest in coming years."