Alphabet's Pixel Making Small but Promising Inroads in the Smartphone Market

The best Silicon Valley firms remain world leaders in their field. Google's parent company Alphabet (GOOGL) is at the top of that list.

That's because of its continued ability to introduce innovative products and services that address demand or anticipate it. The company has become a staple of daily life. 

Alphabet is a holding in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. See how Cramer rates the stock here. Want to be alerted before Cramer buys or sells GOOGL? Learn more now.

A new report shows Alphabet gaining ground on Apple in the smartphone market.

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Strategy Analytics found that global smartphone shipments reached 375 million units in the third quarter of 2016. The Android operating system captured a record 88% global market share, squeezing Apple iOS and others.

Shares of Alphabet rose slightly in Monday trading. 

Neil Mawston, executive director at Strategy Analytics, said, "Android's domination of global smartphone shipments remained strong in the third quarter of 2016, with a record 88% of all smartphones now running Google's OS. Android's gain came at the expense of every major rival platform."

Google has even had success promoting its new smartphone, the Pixel, as the top alternative to the iPhone. It has used its control of YouTube to spotlight videos showing consumers how to switch to a Pixel from an iPhone, and pushing for reviews comparing the two devices' cameras.

According to a Morgan Stanley report released Monday, Alphabet will sell about three million phones in the third quarter and another four to five million Pixels next year. That's far from the 200 million smartphones that Samsung and Apple sell, but it still represents a decent amount of business, and the growth seems promising. 

Strategy Analytics found that global smartphone shipments reached 375 million units in the third quarter of 2016. The Android operating system captured a record 88% global market share, squeezing Apple iOS and others.

In addition, Alphabet is increasing its market share in South Asia, Africa, and the Middle East -- regions where a large portion of the potential smartphone market remains untapped.

The company's marketing emphasizes that while the iPhone may remain the top-of-the-line model for the moment, the Pixel is the more affordable option for first-time smartphone buyers.

The success of its smartphone project is one reason, albeit a small one, that Alphabet's revenue and earnings reports continue to exceed the smart money's expectations.

For the third quarter of 2016, total revenue climbed 20% to $22.45 billion. Analysts had projected just $22.05 billion in sales.

"We had a great third quarter, with 20% revenue growth year on year, and 23% on a constant currency basis. Mobile search and video are powering our core advertising business, and we're excited about the progress of our newer businesses," said Ruth Porat, CFO of Alphabet.

She added during a subsequent conference call: "Google cloud is generating substantial revenue growth reflecting the ongoing momentum in the business." The firm is planning higher investments in the cloud business -- renting hardware and software computing resources online to companies -- in 2017, as it challenges Amazon and Microsoft.

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Tom Scarlett is an independent contributor who at the time of publication owned none of the stocks mentioned.

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