Industry Insight: Smart Phones' Dumb Luck

"Industry Insight" is a weekly series that examines sectors through what's known as the five forces of competition, which can help separate the winners from the losers. Come back every Monday at 6 a.m. to see which industries and companies will be put under review.

You're not cool unless you have a smart phone, apparently.

With a wave of new iPhones, Pres and BlackBerrys hitting store shelves every week, customers' choices are ample. Still, that doesn't translate into profits. The majority of phones will go unnoticed by the masses, leaving companies in no better shape than before they started.

While hit phones can be a gold mine for their manufacturers, the competitive landscape creates an unattractive environment for investors. Due to customers' high expectations and the highly contentious dynamics among competitors, few will prosper while most fall flat.

Here's the breakdown for the smart phone industry:

Degree of rivalry: Rivalry among companies producing smart phones is extremely high. The two biggest players, Apple(AAPL Quote) and Research in Motion(RIMM Quote), tend to resort to thinly veiled criticism of competitors' phones. Apple makes the iPhone, and Research in Motion sells the BlackBerry.

After word came from Palm(PALM Quote) that its latest hope for a revival, the Pre, would be able to sync with Apple's iTunes, Apple shot back by saying that such software loopholes would soon be closed. That came after Apple threatened to sue Palm for allegedly infringing on its touch screen.

Price is usually the most contested issue with most phones selling at razor-thin profit margins. The market is so hot for these phones that companies are willing to make several concessions to gain a foothold with hopes of future success.

Threat of new entrants: Extremely high. A smart phone isn't difficult to make. Any consumer-electronics firm could conceivably produce a phone that will become the next iPhone.