Competition will help smartphones become the norm

While smartphones have captured the most industry buzz for the past couple of years, standard cell phones have always captured the majority of market share. This is changing at a rapid pace, however, with smartphone sales poised to overtake standard mobile phones by 2012, according to Infonetics Research’s biannual mobile/Wi-Fi phones report issued this month.

Smartphones are on track to post a 14.5% increase in the number of units sold worldwide in 2009 and a 21% compound annual growth rate from 2008 to 2013, which is significantly better than any other mobile phone segment, said Richard Webb, directing analyst for mobile devices with Infonetics. To date, smartphones make up only 15% of the overall mobile handset market.

In the third quarter of 2009, both the big five handset-makers and Tier 1 carriers in the U.S. pinned their hopes for pulling out of the economic recession on smartphones. Webb said that smartphone revenue is expected to continue to dip in 2009 — as it has in earlier quarters — due to price erosion and lower–average revenue per user units coming to market, but it will pick up in 2010 and continue growing, easily outstripping the combined revenue of standard mobile phones by 2012. The growth in smartphones is being driven in part by accelerating high-speed packet access deployments in North America, Western Europe and developed Asia-Pacific countries, the report found.

Nokia stayed in the lead for total mobile phone market share in the first half of 2009, but the handset that has attracted the lion’s share of attention, Apple’s iPhone, grew its market share to 17.1% in its fiscal fourth quarter, compared to 16.6% in the previous quarter. The second half of the year is proving more challenging, however, as the iconic device faces increasing competition from new handsets, such as the Motorola Droid, launched on Friday from Verizon Wireless, and Research In Motion’s BlackBerry Bold 3G from AT&T. RIM passed Apple in smartphone market share with 30% of the market in the most recent quarter, but Webb said Apple’s success would hinge primarily on Android.

“You are looking at a user group that has very similar priorities in terms of what it wants from a user experience and in mobile broadband from a smartphone device,” Webb said. “I would think Android will start mopping up people who might have gone for an iPhone instead. That will bring more competition to the iPhone. I think you are seeing more response from other vendors as well — like BlackBerry’s Storm, Palm’s Pre. There are some nice high-end smartphones coming out, but also cheaper, budget-oriented smartphones that you could consider competition for smartphones as well, just for a slightly different market.”

For the largest five handset-makers, Nokia sold 100 million units and took 37.9% of the market in Q3. Korean manufacturers Samsung and LG captured market shares of 21% and 11%, respectively. Struggling Sony Ericsson grabbed 4.9% of the market, and Motorola captured 4.7%. Overall, smartphone shipments rose 4.2% to 43.3 million globally compared to the 41.5 million shipped this time last year and 41.9 million shipped in the previous quarter. Infonetics is forecasting 1.1 billion mobile phones sold in 2009 worldwide, and Webb said that the move to long-term evolution networks (LTE) will solidify smartphones as the future leaders of the wireless segment.

“We don’t see any point in having a non-smartphone LTE phone because you are not going to need LTE bandwidth unless you are going in for pretty rich applications,” Webb said. “If you are really predominantly going to be voice and light data, than you don’t need to upgrade to an LTE phone — a 3G phone is fine. We think LTE is a real point for that kind of trend — all phones gradually becoming smartphones. Then we won’t have to call them smartphones; they’ll just be phones.”