Handset makers Research in Motion Ltd. (NASDAQ: RIMM), Nokia Corp. (NYSE: NOK), Motorola Mobility Holdings Inc. (NYSE: MMI), Sony Ericsson, LG Electronics, and HTC Corp. trail far behind in profits, with only Nokia, Samsung, and HTC posting any profit at all. Sony Ericsson posted an operating loss of -$317 million in 2011 and Motorola lost -$19 million. LG managed to break even.

In market share by operating system, Apple’s iOS trails the Android operating system from Google Inc. (NASDAQ: GOOG), with 19% to Android’s 48% at the end of 2011. Canaccord Genuity estimates that at the end of this year, Android will hold 57% share to Apple’s 22%. The wild card here is Nokia’s coming introduction of new smartphones using the Windows Phone operating system from Microsoft Corp. (NASDAQ: MSFT).

Compared with profits, though, operating system market share doesn’t mean much, especially because Google distributes Android for free. And that free software is probably the only thing that allows Samsung and HTC to make a profit at all.

What gives Apple its staggering profit share is the company’s ability to price its iPhones at a premium other vendors’ offerings. Apple is clearly forcing its competitors to race to the bottom and compete with one another on price. Ericsson has already abandoned its joint venture with Sony. Why Sony plans to continue losing money probably has more to do with management egos than anything else.

Motorola, which is about to be acquired by Google, is also in a precarious position. Because Android doesn’t cost any of its competitors anything, the Google/Moto tie-up gains no advantage from the acquisition. HTC, which has fouled up its inventory management, might not have enough time to sort itself out. LG can hold on for a while because it is large enough to absorb some losses (-$266 million in the first 3 quarters of 2011), but there’s really no reason for the company to continue to bleed to death.

Samsung saw its share of the industry’s total operating profits fall from 26% in the third quarter of 2011 to 15% in the fourth quarter. And it looks like the third quarter was the aberration, probably due to impatient consumers who would have bought the iPhone 4S if it had been available by late September.

Samsung is expected to grow its market share from 19.5% in 2011 to 26.3% in 2012. That doesn’t really help much though, as Samsung’s problem is that its profit share is quite vulnerable. The company simply doesn’t have the thought leadership position in the smartphone marketplace and there is no way for the company to price its phones to yield maximum operating profits. Its position remains at the front of the line of also-rans.

Canaccord Genuity raised its price target for Apple to $665/share today, and we have more coverage on that here. Apple shares are up about 3.6% just before noon today, at $493.72 after posting a new 52-week high of $495.12.

Paul Ausick

Yahoo! Shakeup

Four Yahoo! (NASDAQ: YHOO) directors will leave the battered internet portal company. Those departing include chairman Roy Bostock, who has been blamed for Yahoo!’s inability to get a good CEO and to set a strategy for the firm to recover from a weak internet advertising market. Yahoo! added two independent directors, Alfred Amoroso and Maynard Webb. Amoroso served as president and CEO of Rovi Corp. (NASDAQ: ROVI) until December 2011. Webb, the chairman of LiveOps, served as that company’s CEO until July 2011. Neither has particularly impressive credentials. But, even if either did, Yahoo! set no policy to solve its most immediate problems. It still has not disposed of its ownership positions in Yahoo! Japan or China e-commerce firm Alibaba. Neither stake does anything to help Yahoo!’s business operations. The disposal of the shares would add substantially to the firm’s balance sheet.

No Greek Fix

All of the participants in the resolution of the Greek sovereign debt crisis continue to refuse to act in a way that would bring the problem to a head. The European Central Bank apparently is willing to exchange some of its debt for new paper, the result of which would be to cut that southern European country’s debt load. Private investors have mostly agreed to terms to cut the value of their debts. Most Greek leaders have buckled to pressure to cut more government costs. Some of Greece’s unions continue to march in the streets to protest wage cuts. And, day after day, nothing is resolved.

Airbus and Boeing Woes

Two of the world’s newest commercial aircraft continue to have mechanical problems. The Sydney Morning Herald reported that a Qantas Airbus 380 super-jumbo has wing cracks. It is not the first of the planes to have the problem. Airbus has suggested an inspection of the model. In the meantime, some remain grounded. Some of Boeing’s (NYSE: BA) new Dreamliner 787 will not make it to airlines on schedule. Support structures in the aft fuselage of the plane have developed gaps. That could cause a series of inspections and a probable slowdown in factory production.

Douglas A. McIntyre

A House committee pushes through plans for a reconsideration of the Keystone XL pipeline. (Reuters)

The chairman of Yahoo! (NASDAQ: YHOO) to leave. (Reuters)

Nissan posts better earnings on strong sales. (Reuters)

An attempt to bolster money market funds may involve setting up a capital buffer and blocking redemptions for 30 days. (Reuters)

A hacker releases source code from security firm Symantec (NASDAQ: SYMC). (Reuters)

Amazon.com (NASDAQ: AMZN) and Viacom (NYSE: VIA) may close a transaction to allow the e-commerce company to stream premium video from Viacom properties. (Reuters)

The European Central Bank will change the treatment of its Greek debt to try to salvage a bailout deal. (WSJ)

Some large investors disapprove of a merger deal between Glencore and Xtrata. (WSJ)

General Motors (NYSE: GM) will again try to cut workers at Opel. (WSJ)

UBS (NYSE: UBS) to cut bonuses by 60%. (WSJ)

CalSTRS says it has concerns about the diversity of Facebook’s board. (WSJ)

Apple (NASDAQ: AAPL) asks the European Telecommunications Standards Institute to set rules for patent licensing among mobile device companies. (WSJ)

Italian Prime Minister Mario Monti believes Europe must move beyond austerity to plans that will help create growth. (WSJ)

U.S. businesses upgrade plants and move jobs back to the U.S. (WSJ)

European sales of U.S. companies rose in the fourth quarter, which may cause a problem this year as the region’s economy slows. (WSJ)

Six Spanish banks to set aside €11.8 billion because of real estate trouble in the country. (WSJ)

India becomes more open to foreign investment as its economy slows. (NYT)

As Greece fails to set a deal on its debt, more workers go on strike. (NYT)

U.S. stocks reach a six-month high. (FT)

Collateralized mortgage obligations, one of the causes of the credit crisis, are again popular investments for banks. (FT)

Prices for Canadian oil drop sharply as supplies surge. (FT)

Nokia (NYSE: NOK) to fire 4,000 and move more production to Asia. (Bloomberg)

The Illumina (NASDAQ: ILMN) board rejects a $5.7 billion offer from Roche. (Bloomberg)

Douglas A. McIntyre

BP Fights On

The crisis at BP (NYSE: BP) due to the Deepwater Horizon disaster seems long gone. It is not. BP signaled an improvement of its financial health with a dividend increase. At almost the same time, the UK-based firm said it would “vigorously” contest suits against it because of the spill. That vigorous defense of actions will take years. The first major suits against it will be filed this month. Large liability cases brought by governments and private enterprises against major companies before indicate that the process of trial and settlement talks can drag on seemingly forever.

Toyota’s Recovery

Toyota (NYSE: TM) announced the start of an unexpectedly rapid comeback from recall problems and the shuttering of many of its plants due to the Japanese earthquake of last March and more recent interruptions of its supply lines due to floods in Thailand. Toyota made $1.1 billion in the quarter that ended in December. Toyota raised forecasts for net and operating profit. The company still has to regain market share in the U.S. and gain on Volkswagen and General Motors (NYSE: GM) in China, the world’s largest car market. Its market share in the U.S. reached almost 18% four years ago, and it briefly moved ahead of Ford (NYSE: F). Its portion of the market is down to about 12%, and its has competition from resurrected GM and Chrysler, as well has rapidly selling new cars and light trucks made by South Korean manufacturing behemoth Hyundai.

Lumia 900 Launch

Nokia’s (NYSE: NOK) Lumia 900, its new flagship product, is about to go on sale in the U.S. The launch carries with it the hopes of a comeback for the world’s largest handset maker and its software partner Microsoft (NASDAQ: MSFT). Microsoft has had terrible trouble as it struggled to sell its mobile OS against Apple’s (NASDAQ: AAPL), as well as smartphones that use the Google (NASDAQ: GOOG) Android platform. The recent history of smartphone launches shows that the fate of products usually is determined in the first few days they are available. Reports of strong sales bring new customers into stores. Reports of weak sales cause analysts and the press to label a new product DOA.

Douglas A. McIntyre

In the fourth quarter, HTC’s revenue fell 2.9% year-over-year. More telling is that revenue dropped 25% from the third quarter to the fourth. Operating profits were worse, down 36% and 23% respectively. First-quarter profits will drop as much as a third from the fourth quarter of 2011, to $2.2 billion.

The first reaction to the news was hard to dispute. Samsung is set to overtake Nokia (NYSE: NOK) as the world’s largest handset company, and smartphones will be the driver of that success. Apple has taken the number three spot in the market. Its position is marked by the fact that it sells no inexpensive handsets. Smartphones are its sole product category, which makes its success all the more impressive. HTC has been marginalized.

HTC management has to ask itself the same question that LG, Motorola (NYSE: MMI), Sony Ericsson and Nokia do. At what point does an investment in the smartphone industry become financially foolish? At what point is it better to take and hold a 5% market share with modest R&D and marketing expenditures. Put another way, at what point is it best to surrender — at least surrender that foolish hope that there is a chance to overtake Samsung, with its colossal balance sheet, and Apple with products that come nowhere close to satisfying customer demand?

HTC was the latest smartphone company to have had a hot hand. Its sales in 2010 and early 2011 were extraordinary. Its smartphones had a number of features that made them competitive to the iPhone. HTC had unlocked the secret of making features of the Google (NASDAQ: GOOG) Android operating system competitive with the Apple OS. But it could not produce a product like the iPhone 4S or Samsung Galaxy S II. It also did not have the marketing muscle to pressure Apple and Samsung in the consumer markets.

HTC’s run is over now. That may not make sense, because it was doing so well a year ago. But Apple and Samsung have grabbed market share that they can hold because of better products and better finances.

Douglas A. McIntyre

Sony named Kazuo Hirai as president and CEO. He replaces Sir Howard Stringer, who has run the corporation since 2005, and over the past seven years has run it into the ground.

Stringer’s biggest mistake has been to stay in two segments of the consumer electronics industry. The first is the manufacturing and marketing of LCD screens, which is a low-margin business, if not a losing one. The other is that Sony continues to make PCs, although there are a number of other PC makers with much larger market share. And, of course, there is the Apple (NASDAQ: AAPL) Mac.

During Stringer’s tenure, he was slow to get a world-class video game console into the market. PS3 sales have not been a disaster, but Sony has allowed its PS2 sales advantage to wither as Nintendo and Microsoft (NASDAQ: MSFT) have made market share gains. Whether Hirai’s engineers can upgrade the PS3 enough to take substantial market share, particularly from Microsoft, is an open question. Certainly, the process will be hard.

Stinger also made the odd move of taking over the half of the Sony Ericsson smartphone joint venture that Sony did not already own. Sony Ericsson sits in the market well behind the Apple iPhone, Nokia (NYSE: NOK) and a number of Android-powered products from electronics giant Samsung and nimble operators such as HTC. Even Research In Motion (NASDAQ: RIMM) has a better share than Sony Ericsson, which is extraordinary, given the Canadian company’s missteps. Stringer believes that Sony smartphones somehow can be tethered to its content and consumer electronics products. In other words, there is a hidden synergy between Sony’s current businesses and the smartphone company it has taken over in full.

Sony lost its lead in a number of consumer electronics arenas a decade ago. Stringer made the problem worse as Sony’s attempts at innovation failed. Now Hirai has to make Sony a success again, and that is too much to ask of any executive.

Douglas A. McIntyre

A new study from Strategy Analytics shows that in the fourth quarter Apple shipped 37 million smartphones and overtook Samsung to become once again the world’s number one smartphone vendor by volume. Global sales of smartphones were up 54% to 155 million units. Between Apple and Samsung, sales were almost 74 million for the period — nearly half of the total.

Samsung announced its fourth-quarter earnings about the same time as Strategy Analytics released its figures. Its net income rose 17% over last year’s quarter to $3.6 billion. Over the course of 2011, the South Korean company shipped 300 million handsets. Apple’s recently announced earnings were even more impressive.

The data shows what it is like when an attractive market becomes saturated with the products from one or two companies like Apple and Samsung. Each has clearly demonstrated that it can make substantial money in the market. The same cannot be said of any of their rivals. Nokia just announced its unit sales fell sharply and that it lost $1.4 billion in the fourth quarter as sales fell 21%. It will rely on its new Lumia smartphone. While early sales have been encouraging, they are dwarfed by the market’s two leaders.

There is almost always hope among the third, fourth, fifth and perhaps sixth place companies, in many industries, that want to please investors with strong market share. The other contenders will continue to spend billion of dollars in the smartphone sector as they hope to climb the market share ladder. But Apple and Samsung have proved that consumers want their products and not the products of rivals. This gives the two companies strength beyond numbers. Product popularity usually leads to profits. Wireless carriers are willing to spend more on products from Samsung and Apple — especially Apple.

Other handset manufacturers that want to become part of the top tier in smartphone sales are chasing shadows. The hierarchy in the industry is set. There is no sign that companies other than the two leaders can change that. Trends show that no matter how hard they try or how much money they spend, their efforts continue to fail.

Douglas A. McIntyre

Spain’s Unemployment

Spain’s unemployment climbed to 22.6%, which is double the eurozone average. The figure is at a 15-year high. It is hard to see how it can be brought down. The Spanish government already has to deal with a budget gap, severe financial problems among its states, a collapsed banking system and a ruined real estate market. Capital markets investors and EU officials expect Spain to show it can produce an austerity-based budget. That leaves no money to stimulate job growth.

Greek Economy Deteriorates

The pressure on Greece to cut government costs has become even greater in the past day. Greece needs the next tranche of its bailout package — 130 billion euro. A new IMF report has cast a shadow over the negotiations. The data show that the Greek economy is deteriorating faster than forecast. The pressure to implement more austerity measures is relentless. The conventional wisdom that Greece will default in some way gains more evidence as the nation awaits the next stage of its bailout.

Starbucks Robust Earnings

Starbucks (NASDAQ: SBUX) offered more evidence of its turnaround. Revenue rose 16% in the last quarter to $3.4 billion. EPS were higher by 11% to $0.50. The numbers were impressive but do show margins fell slightly. That has not stopped the company from investing in expansion. It opened 241 new stores in the quarter. Comparable store sales were up 9%. If Starbucks is any proxy for the recovery of middle class consumer spending, then spending is on the rise. A $5 cup of coffee is a discretionary decision, if there ever was one.

Douglas A. McIntyre

A judge rules that some of the Gulf spill costs to be covered by Transocean (NYSE: RIG) will be covered by BP (NYSE: BP) instead. (Reuters)

Samsung had record profits on smartphone sales and will increase capex by $22 billion. (Reuters)

An accounting change at Ford (NYSE: F) will change its profits. (Reuters)

Apple (NASDAQ: AAPL) overtook Samsung as the largest smartphone company in the world. (Reuters)

Wellpoint (NYSE: WLP) will change how it pays primary doctors on the theory that early care will prevent expensive diseases. (WSJ)

Executives at bankrupt firms continue to get large bonuses. (WSJ)

European officials say adoption of the Volcker Rule will keep banks from buying sovereign debt. (WSJ)

Investors move out of cotton, copper and crude oil. (WSJ)

Twitter will use the ability to censor tweets to move into some countries where it is blocked. (WSJ)

AT&T (NYSE: T) has fallen behind Verizon (NYSE: VZ) in cellphone sales. (WSJ)

EU leaders expect the size of a bailout fund to rise. (WSJ)

Nokia (NYSE: NOK) says its new smartphones are selling well. (WSJ)

Businesses increase spending as they move into 2012. (WSJ)

Large central banks will continue to use their balance sheets to help national economies. (WSJ)

Starbucks (NASDAQ: SBUX) earnings move higher. (WSJ)

A WPP Group survey shows that consumers rank the performance of global brands higher than they do the moral qualities of the companies that own them. (WSJ)

EU banks that have taken money from the European Central Bank can either keep the money to help their balance sheets or use it to buy risky sovereign debt as a way to stabilize the financials of the region. (WSJ)

IMF studies of the Greek economy show that it is falling apart rapidly. (NYT)

Washington support for wind and solar energy is dropping. (NYT)

The largest hedge fund, Bridgewater Associates, once again turns in strong gains. (NYT)

The Defense Department to cut $485 billion over the next 10 years. (FT)

Large U.S. industrial firms expect sharp growth. (FT)

JP Morgan Chase (NYSE: JPM), which considered leaving the most economically damaged markets in Europe, decides to stay, to some extent, for social reasons. (FT)

BNP Paribas will sell its $11 billion energy loan portfolio. (FT)

Investors continue to pressure Apple to begin to pay a dividend out of its $100 billion in cash. (FT)

CDS numbers show increases in the risk of corporate and sovereign paper. (Bloomberg)

Spain’s unemployment reaches 22.9%. (Bloomberg)

As the economy worsens in Europe, General Motors (NYSE: GM) steps up its attempts to restructure Opel. (Bloomberg)

Douglas A. McIntyre

For the first quarter 2012, ST-Ericsson expects a very significant sequential decline in net sales, resulting from a combination of higher inventory at some of our customers, further weakening of legacy product sales, the effect of first quarter seasonality as well as the reduction, in the short term, of new product sales with one of our largest customers.

Though unnamed, Nokia is believed to be the customer ST-Ericsson is referring to here.

There is also a belief that Nokia will have to cut its rich 8.6% dividend yield as the company tries to conserve cash for the coming launch of its new smartphones using the Windows Phone 8 operating system from Microsoft Corp. (NASDAQ: MSFT). Lagging sales of the company’s cheaper feature phones aren’t helping either.

Nokia’s ADRs are down nearly -7.5% today at $5.31 in a 52-week range of $4.46-$11.75.

Paul Ausick