Apple reaches number 3 in the smartphone market, but what happened to that 1 percent?

Grazeley (UK) – The iPhone has made Apple one of the world’s largest smartphone company in an instant. But while there are few companies that could pull this off, Apple appears to be missing its initial goals.

At first sight, the smartphone market estimates published today by Canalys look like a stunning success for Apple. About 2.3 million iPhones were sold in the fourth quarter of last year, allowing the company to be listed on position #3 in the ranking of the world’s largest smartphone makers. Nokia dominates the segment with 18.8 million units sold in the same time frame, followed by RIM with 4.1 million devices. Motorola is ranked fourth, 19,600 phones behind Apple, with an estimated 2.3 million phones.

However, Apple is far from the market share it originally hoped to achieve. At launch, Steve Jobs said that 1% of the cellphone market is the goal, which translates into about 11 million phones annually for 2007. In other terms, this 1% was also comparable to roughly 10% of the smartphone market (the segment the iPhone competes in), which was estimated at about 110 million units annually at the time.

Now it appears that Apple has a tough time matching the projections of its CEO. 35.5 million smartphones were sold in Q4, which means that Apple is currently at a 6.5% market share in the smartphone market, while Nokia is at 52.9% and RIM at 11.4%, according to Canalys. Compared to the overall cellphone market, Apple is also off : According to iSuppli, about 338.0 million cellphones were shipped in the fourth quarter of last year, translating into a 0.68% market share for Apple.

If we assume that the cellphone market grows at the same rate as it did in 2007 (16.5%, according to iSuppli), then more than 1.33 billion cellphones could be sold this year. If Apple still aims at 1% of the market, the company would have to ship more than 3.3 million iPhone in each quarter on average. In the smartphone market, the challenge looks be even more difficult for Apple, as shipments increased by more than 53% (to 116 million units) in 2006 as a whole and almost 73% in Q4 2007 over Q4 2006. Nokia saw its Q4 shipments climbing by about 69%, RIM gained 121% year over year. Motorola, despite its troubles, also saw its smartphone shipments increase by 57% in the same time frame.

Common sense suggests that Apple will need additional high volume iPhones to achieve the 1% goal and we aren’t convinced that a new flagship such as the 16 GB iPhone will support the company on this path. It looks like Apple will have to offer an iPhone nano with a $199 price tag, if the company sticks to its original target.