A smartphone race to the bottom

In a turf war between Android and Windows Phone 7, Apple's iPhone could be the winner

"The major event in the [past] quarter," writes Needham's Charlie Wolf in a note to clients issued Friday, "was the successful launch of Windows Phone 7, Microsoft’s new smartphone operating system."

With so much at stake, he expects Microsoft (msft) to compete aggressively with Google (goog) for the loyalty of the major smartphone manufacturers: HTC, Samsung, Motorola (mot), LG and Sony Ericsson (sne).

"A turf war between Microsoft and Google," Wolf writes, "could well ensue."

And that could be good news for Apple (aapl):

"In the short run," he concludes, "the turf war could put the smartphone manufacturers in the driver’s seat. Ultimately, however, commoditization, accompanied by deteriorating prices and gross margins, appears inevitable for licensees of the Android and Windows Phone 7 operating systems. With its growing brand equity, the iPhone could end up as the last man standing in this race to the bottom."

[Follow Philip Elmer-DeWitt on Twitter @philiped]

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