Smartphones Thriving in Slumping Handset Market

After experiencing a record 9.4 percent decline in the first quarter, worldwide global sales of mobile phones fell another 6.1 percent in the second quarter, Gartner says. Smartphone sales, though, jumped 27 percent with the Apple iPhone, Palm Pre and Nokia N97 making their market debuts. Only the iPhone didn't disappoint.

Overall mobile phone sales were down 6.1 percent in the second quarter, but smartphone sales surged 27 percent from the same period in 2008, according the latest worldwide sales numbers from Gartner. Overall, second-quarter mobile phone sales totaled 286.1 million units, down from 304 million sales in the second quarter last year.

But it was smartphone sales-particularly Apple's new iPhone 3GS model-that grabbed Gartner analyst Carolina Milanesi's attention.

"Despite the challenging market, some devices sold well as consumers who would usually have purchased standard midrange devices either cut back to less expensive handsets or moved up the range to get more features for their money," Milanesi said in a statement. "Touch-screen and QWERTY devices remained a major driver for replacement sales and benefited manufacturers with strong, touch-focused midtier devices."

Click here to read about how Apple, Nokia and RIM are leading new trends in handsets.

Apple's expansion into a larger number of countries in the past year had a clear effect on its sales volumes, as have the recent price adjustments for the 8GB 3G iPhone, Milanesi said. Sales of 5.4 million units in the second quarter indicated a 51 percent growth in shipments and helped Apple maintain the No. 3 position in the smartphone market.

Overall, Nokia paced the smartphone market with 18.4 million sales to claim a 45 percent market share. Research In Motion came in second with 7.6 million sales and an 18.7 market share while Apple's 5.4 million sales were good enough to take third with a market-share slice of 13.3 percent.

The second quarter also saw the debut of Nokia's high-end N97 smartphone and the long-awaited Palm Pre based on a new Web operating system. Both stumbled out of the blocks, with Nokia selling just 500,000 units in the channel since it began shipping in June and Pre sales reaching just 205,000 in the quarter.

The Apple 3GS iPhone, by contrast, racked up sales of 1 million units in its first weekend. Moreover, since the new iPhone came to market at the end of the second quarter, its full potential will only start to show in sales figures in the second half of 2009.

"Smartphone sales were strong during the second quarter of 2009, with sales of 40.9 million units in line with Gartner's forecast of 27 per cent year-on-year sales growth for 2009," Milanesi said. "Given the higher margins, smartphones offer the biggest opportunity for manufacturers. It is the fastest-growing market segment and the most resistant to declining ASPs."

As for Nokia, Milanesi added, "The right high-end product and an increased focus on services and content are vital for Nokia if it wants to both revamp its brand and please investors with a more promising outlook in ASPs and margins."

Gartner analyst Roberta Cozza said of the Pre, "Palm currently ranks 10th in the smartphone market and Gartner remains concerned about its ability to gain traction outside the U.S. market, where its brand is less strong."

In the smartphone operating system market, Symbian held a 51 percent share in the second quarter, down from 57 per cent a year ago, while RIM and Apple increased their shares year-on-year. Android's share was just under 2 percent but more Android-based devices will come to market in the fourth quarter, intensifying competition in the smartphone OS market, particularly for Symbian and Windows Mobile.

Microsoft's share continued to drop year over year, accounting for 9 per cent of the market in the second quarter.

"Microsoft licensees HTC and Samsung continued to add features to their own interfaces, on top of Windows Mobile, to create more competitive products and make up for the usability constraints of the Microsoft platform," Cozza said.