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Android-Related Stocks 'to Avoid'

Don Reisinger|TheStreet Technology Contributor
Thursday, 24 Jun 2010 | 3:35 PM ET

Recently, market research firm NPD found that during the first quarter of 2010, consumers purchased more Google Android-based devices than iPhones. Android phones accounted for 28 percent of all purchases during the quarter, while Apple's iPhone tallied 21 percent share. Leading the way, RIM's BlackBerry captured 36 percent of sales.

It was an important win for Google and Android. But for investors, it was eye-opening. Google has finally shown that Apple can be beaten. And the companies the search giant partners with have become more viable investment targets.

At the same time, Android's success has highlighted some less desirable stocks — read on for more about the three — that, if Android is being used as an investment strategy, probably aren't the best bet.

It might sound counter-intuitive to say that Android investors should bet against one of Google's top Android partners, but historically, Motorola has been troublesome for investors.

As Android has grown, Motorola, which currently offers the Droid and will be announcing the new Droid X sometime this week, hasn't been so reliable for its owners. Over the past four years, Motorola's revenue has declined from $42 billion in 2006 to $22 billion in 2009. Last year, the company posted a disappointing loss of $51 million, even though it was offering an extremely popular Android-based device.

The company's future prospects could be just as troublesome. Success in the smartphone space relies upon a company's ability to satisfy consumers. If consumers like what they see, they might pick up a Droid X. But if the new device can't match the competition, they won't buy it.

Unfortunately for Motorola, the Droid X will never be the iPhone 4. And even trying to top the HTC Droid Incredible, arguably the best Android-based smartphone on the market, could be a tall order.

Simply put, Motorola is a wild card. The company is betting its future performance on its Droid platform, which so far, has been unable to bring it into the black. And since the Droid X probably won't be able to match the iPhone 4, there's no telling what the next year will look like for Motorola. Things could get worse.

Microsoft's Market Share

When it comes to Microsoft , there is no question that its stock has been impacted by Android. As Google saw the changing market trends and delivered a touch-capable mobile operating system, Microsoft stuck with Windows Mobile 6, an outdated OS that offers no touch capability. Microsoft plans to release Windows Phone 7, the follow-up to Windows Mobile 6.5 and its first iOS 4 and Android competitor, later this year. But by then, it could already be too late.

Microsoft claims that several partners, including Hewlett-Packard , Garmin and Dell , are ready to offer Windows Phone 7 devices in the coming months. But whether or not they will stick with the software giant remains to be seen.

And it's Google that it has to blame for that.

According to Nielsen, Android OS gained 2 percent market share in the first quarter. It now has 9 percent of the overall smartphone market. Microsoft still has 19 percent market share, but that figure has been declining at a rapid rate. In fact, during the first quarter, Microsoft lost 2 percent market share. Considering how competitive the smartphone space is, third-party vendors need to hitch their futures to the software that is most likely to succeed. Android is a proven winner. Windows Phone 7 still isn't available and it's coming from a company that has been unable to see the changing market trends.

Simply put, it's not a good move to bet on Microsoft right now, regardless of whether you're a handset maker or an investor.

Although the joint venture between Sony and Ericsson has been supporting Android, the brand's an also-ran in the space.

In the Android market, there are two major players: HTC and Motorola. Beyond that, few Android-based devices are garnering much attention. And the chances of Sony Ericsson changing that are slim.

In April, Sony Ericsson announced its first-quarter earnings. Although the company turned a small profit, it shipped just 10.5 million units during the quarter. That figure represented a 28 percent decline compared to the previous year. That's not a good thing. Sony Ericsson might be solvent, but investors need to find the companies that garner attention and profits. Considering the Android market could be a fine place to invest, finding companies that are adequately positioned in that space makes the most sense.

Sony Ericsson just isn't one of those companies. Its Android participation is slight, its unit-shipments are falling, and it doesn't get the kind of attention other, larger Android partners enjoy. It's in the shadow of all the big phone makers in every way. That should be enough to stay away for most investors.

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Disclosures:

Disclosure information was not available for Reisinger or his company.

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