iPhone 5 (three-up, profile, front, back, black and white)

Every company loves maximum profits. For years, Apple and Samsung have sold high-priced smartphones loaded with features that were eagerly snapped up by consumers in mature economies in North America and Europe. Now the two largest smartphone makers face a changing consumer profile where basic is best and inexpensive is in vogue.

Just days ago, research giant Gartner noted low-cost devices comprise the bulk of both firm’s device sales, making questions of whether to sell ‘cheap’ handsets only a distant – and irrelevant – memory. Now comes fear from Wall Street that the salad days of smartphones are over for Apple and Samsung…

Bernstein’s Toni Sacconaghi Monday on CNBC tried to explain (via Fortune) why both smartphone makers have recently been punished by investors.

Samsung’s tepid sales of its new Galaxy S4 are “perhaps not fulfilling expectations about the high end of the smartphone market.”

In other words, “the Street is thinking that if Samsung can’t sell as many high-end smartphones as expected, then neither can Apple,” writes Philip Elmer-DeWit.

Seems like a pretty good assumption.

IDC (Europe smartphones, 201305, chart 001)
Source: IDC European Quarterly Mobile Phone Tracker, May 2013.

Growth has slowed in developed nations, such as the U.S. and in Europe, as adoption of smartphones is nearly complete. Instead, the competition isn’t over whether to buy a smartphone or stick with your dumb feature phone, but whether you’ll stick with Apple or try Android.

In a way, the smartphone market in the U.S. resembles competition among cellular carriers, where the customers drift from one brand to another.

iPhone 5 presser (Phil Schiller, iPhone family prices)

“The challenge in the smartphone market is also that, as penetration move more and more to the mass market, price points are lowering and in most cases so do margins,” Gartner announced Monday.

In Samsung’s case, almost half of its smartphone sales are in the sub-$200 category.

If the rumors are true, Apple will launch a less-pricey iPhone sold contract-free to the mid-tier sub-$300 segment in developing markets.

Some watchers expect the device to actually replace Apple’s free iPhone 4/4S on-contract phones, but that’s just speculation at this point.