Can smartphones reverse handset declines?

The first quarter of 2009 saw the fastest-ever decline in annual shipment growth since the modern cell phone industry first began in 1983, according to research group Strategy Analytics. With the top five major handset makers having reported their first-quarter earnings, the consensus is that, while things can’t get much worse, the industry hasn’t hit bottom yet.

The first quarter is typically the weakest, as handset makers come off the holiday season and concentrate on clearing out excess inventory. Thanks to the economy’s influence on consumer spending and market volatility, however, this quarter was worse than usual. The top 10 handset vendors reported combined sales of between 213 million and 258 million devices in the first quarter of 2009, depending on which company is making the projection. This represents an 11% to 17% quarterly decline and a more than 15% year-over-year fall.

“We knew it would get worse before it starts to get better, but the first-quarter results that deluged the industry this week pretty much confirmed earlier warnings from industry-leaders such as Nokia (NYSE: NOK) and Samsung that the handset market could contract by 10% or more this year,” Juniper Research analyst Andy Kitson wrote in the Juniper blog.

IDC senior research analyst Ramon Llamas agreed that handset makers should expect double-digit declines throughout 2009 compared to corresponding quarters last year, but he said it’s not all bad news for the handset makers – or at least the ones with strong smartphone product lines. As new features and handsets, including the next iPhone, Palm (NSDQ: PALM) Pre, new Android devices and Nokia N97, roll out, smartphones will continue to drive the industry’s recovery.

“It’s not all completely doom and gloom for mobile phone vendors, because even though the overall mobile phone market is struggling, the smartphone market is still doing pretty darn well,” Llamas said. “The writing is on the wall that the market is struggling, but at the same time, look what everyone is investing in.”

SMARTPHONES GROW AS RIM’S CURVE PASSES THE IPHONE

Even as the overall market dropped 15.8%, smartphones grew 4%, according to IDC. The high-end handsets, which represented just 17% of handset sales volume in 2008’s first quarter, now make up 23% of sales. Apple (NSDQ: AAPL)saw its growth skyrocket by 122.7% year-over-year, although sales were down 13.1% from the previous quarter. The iPhone maker shipped 3.8 million devices worldwide in the first quarter. Research in Motion (NSDQ: RIMM), meanwhile, grew 23% from the previous quarter, up 70% year-over-year. With 7.8 million devices shipped, the smartphone maker now captures 3% of the handset market, compared to Apple’s 1.5% market share.