iPhone's Crutch of Subsidies

For Google, Europe's economic turmoil has had a silver lining: Smartphones that use the Internet giant's software are crushing the iPhone in countries hard hit by the continent's debt crisis.

Last year, despite Apple's high-profile launch of the new iPhone 4S, only 5% of the smartphones sold in Greece and 9% of those sold in Portugal were iPhones, according to research firm IDC. Most of the rest were phones running Google's Android operating system, which the company is promoting heavily as it seeks a firmer foothold in the wireless industry. The results point to a rare weak spot for Apple—its heavy reliance on subsidies from wireless carriers to make its iPhones affordable to a wider range of consumers. The practice has proved to be a big advantage for Apple, which posted a 73% jump in revenue in its latest quarter, at the expense of carriers such as Sprint Nextel, which started carrying the iPhone last fall but doesn't expect to make a profit on the device until 2015. In countries like the U.S. and the U.K., carrier subsidies helped the iPhone win more than 20% of the smartphone market last year. But its performance in parts of southern Europe where most consumers don't sign contracts and have to pay full freight for phones suggests Apple's position could suffer if carriers tire of underwriting most of the cost of the devices, as some are in countries such as Denmark and Spain.