Apple is in Trouble

The AT&T/iPhone dropped call saga is no secret and neither is the cult-like following of Apple's (AAPL:NASDAQ) products that keep consumers hooked on their "magical" devices. But how long can Apple's Kool-Aid effect last if there are simply better products on the market at cheaper price points?

I have cited Apple's strong presence in the smartphone market and have recommended getting long the stock for over two years now as smartphones have grown in prevalence. I still believe that Apple will have its share and continue to grow, but there may be some cracks forming in the tech monolith's foundation. Let me explain.

The iPhone

In 2004, before the iPhone, there were a handful of smartphones with the BlackBerry, from Research in Motion (RIMM:NASDAQ), reigning supreme in all things cool and cutting edge. If you were a businessperson in the know and with the means, you had one, and you were addicted to it. It was the iPhone of its time and back then I thought there could be nothing that would replace it. When the iPhone was released, it really was a magical device and almost immediately made the "Crackberry" obsolete. Not because it was granting wishes, but because of its complex yet beautifully simple design and functionality.

Users flocked to the device and Apple stayed focused on marketing this one single mobile computer that changed the way smartphones were designed and used, and set a high bar not only for functionality and features, but for the integrated world we are now living in. The App store, messaging, gyroscopic feedback and the simple, sexy and robust user interface became normal features that users demanded and until recently had little real competition.

There have been a number of phones that were released after the iPhone -- dubbed "iPhone killers" -- but none have single handedly been able to topple the iPhone from the top spot... until now.

Several companies, now working in unison, may spell trouble for the iPhone.

HTC, Google, Sprint (and Other Carriers)

The Android family of phones dominated sales in 2010. Android was the No. 1 selling phone (operating system) last year and continues to take market share away from Apple. Some experts are expecting Android to capture almost 50% of market share by the end of next year. Android, which is an open source operating system owned by Google (GOOG:NASDAQ), is expected to be dominant in both high-end and lower-priced phones. Apple will most likely stay focused in the upper end of the market, although there is talk of Apple introducing a lower-end phone.

Competition

HTC (2498:Taiwan) and Android have assembled some seriously powerful phones that have all the features of an iPhone and more. Motorola, Samsung and others have also created some amazing devices, but HTC seems to dominate in the Android world.

When I walked into the Sprint store on Tuesday, I was amazed to find that there were several people like me who were trading in their iPhone 4's for new HTC phones that day. This was at about 1:00 p.m., so definitely not peak time for the store.

The salesman, Robert, informed me that on Saturday he had converted 113 iPhone users. I asked him to try converting me. (He ended up doing so and I'm not an easy sell.)

After all was said and done, I walked away with a new HTC EVO 4G, which is faster and has better call quality than the iPhone 4. Of course, there is a bit of a learning curve if you are a former iPhone user, but it's well worth it in my opinion. Even the CNET techies agree and rate it as a better phone all around -- check this out.

Plan Cost

The biggest driver for me was savings...

Sprint (S:NYSE) in particular is extremely aggressive in its plan pricing and offerings. For $79 per month (less if you qualify for certain discounts) you get unlimited text, talk (mobile phones), data, Sprint TV and GPS. No activation fee is charged and from my understanding, Sprint rarely asks for a security deposit, and if so it's capped at $50.

If you bring your number to Sprint from another carrier, they also offer a generous credit on your bill ($125-$175), and they bought back my iPhone for $270. I walked away cash flow positive, which I used to pay my early termination fee. Keep in mind that offers may vary from store to store.

This compares with $145 per month for unlimited text, talk, GPS and only 4GB of data per month on AT&T (they no longer offer unlimited data on the iPhone).

By the way, Sprint also offers FULL insurance on the EVO, which protects against everything including water damage, at a cost of $7 per month. AT&T does NOT offer this, although insurance can be bought for the iPhone through a third party.

Will Consumers Switch?

At 50% of the cost, the EVO 4G (or other Android phones) on Sprint amounts to an annual savings of at least $870 (more for overages on data). With that money I thought about the new 3D TV or home theater system I could buy and have fewer dropped calls at the same time. Or maybe just have more money for other things in my life.

Even though I can afford to pay more and liked my iPhone for the most part, I was compelled to make the switch. For someone who is stretching their budget on the iPhone, I think the change may be even more compelling.

Of course, the iPhone is also available on Verizon and from what I hear gets better reception, and I know that there are some folks who couldn't be without their beloved iPhones. But the aggressive anti-iPhone tactics being employed by Google, Android phone makers like HTC and carriers such as Sprint make me think that Apple has some serious work to do to maintain its command.

This isn't about Apple falling apart, but more about companies like Google and even Sprint perhaps capturing better than earnings in the smartphone space. HTC's market cap has recently eclipsed global phone giant Nokia and in my opinion has room to grow.

Unfortunately for most of us here in the States, HTC stock is not tradable. If you do have an account that allows you to trade internationally, HTC's stock can be found on the Taiwan Stock Exchange under the symbol 2498.

If you don't have an account that lets you trade international stocks, keep your eyes on Google and Sprint for the future..