Smartphones ring in healthy growth in 2009

EL SEGUNDO, USA: Although the outlook for the overall mobile handset market continues to dim, smartphones remain a bright spot with global unit growth as high as 11.1 percent in 2009, iSuppli Corp. predicts.

iSuppli’s optimistic forecast for global smartphone unit shipments calls for 192.3 million units in 2009, up 11.1 percent from 173.6 million in 2008. A more pessimistic outlook calls for growth of only 6 percent this year, reaching 183.9 million units.

“For the optimistic scenario to come to fruition, wireless network operators must cut fees for data services and offer aggressive subsidies to reduce consumer smartphone prices,” said Tina Teng, senior analyst for wireless communications for iSuppli. “Furthermore, wireless operators and handset brands have to sell consumers on the value of smartphones to encourage customers to upgrade.

However, if consumer confidence continues to erode, iSuppli’s pessimistic forecast is likely to prevail, Teng warned.

The figure presents iSuppli’s optimistic and pessimistic forecasts for global smartphone unit shipments.
iSuppli: Global Smart Phone Unit Shipment Forecast (Millions of Units)

iSuppli defines smartphones as mobiles handsets that use high-level operating systems (OSes), allowing them to expand their functionality via the sophisticated add-on applications, such as personal information management (PIM) programs. There presently is no industry definition for the smartphone. As the platform continues to evolve, iSuppli will refine its definition of the smartphone as well.

According to the optimistic scenario, smartphones will represent 17.4 percent of total mobile handset unit shipments in 2009. If the pessimistic scenario holds sway, smartphones will account for only 16.6 percent of total mobile handset shipments this year.

Furthermore, the optimistic scenario foresees a unit shipment CAGR of 21 percent from 2008 to 2013, while the pessimistic view predicts an 18.3 percent growth rate.

“With 3G networks having become prevalent all over the world, smart phones are no longer just for corporate users, they are for consumers too,” Teng said. “Consumers increasingly are demanding data-intensive applications that require the kinds of high data speeds supported by 3G networks.”

Operating systems head for high ground
With the rise of the smartphone market, battle lines are forming around operating systems used in these devices.

“The endorsement of certain operating systems by various operators and handset brands is giving open OSes a push. With the power and influence of the operators in the wireless supply chain, their support is putting high-level operating systems under the spotlight.”

High-level operating systems for smartphones include Microsoft's Windows Mobile, Symbian Foundation’s OS, Research in Motion’s RIM OS, Apple's Mac X OS, the Google/Open Handset Alliance’s Android, Palm’s OS and other Linux-based operating systems.

The enthusiasm for smartphone OS and software development was demonstrated in February by multiple industry announcements at the Mobile World Congress, including:

* Microsoft debuted Windows Mobile 6.5 running on handsets from HTC, LG and Orange.
* LG announced a plan to develop 50 Windows Mobile-based devices through the year 2012.
* Nokia, the world’s No.-1 handset maker, announced its collaboration with Qualcomm on 3G smartphone products based on the Symbian OS.
* Huawei, one of the few promising Chinese mobile handset manufacturers, confirmed it will launch a smartphone in the third quarter based on the Google Android OS.
* Samsung, the globe’s No.-2 handset manufacturer, confirmed the release of smartphones based on Android and LiMo, a Linux-based platform.
* No.-3 PC maker, Acer, also jumped into the smartphone bandwagon.

Applications are everything
High-level mobile OSes have emerged as critical components of service providers’ handset strategies. The OS ecosystem and the direction of each application developer community determine the availability of applications for network providers and subscribers. Because, the operating system is transparent to the end user in most cases, such applications are essential to attracting consumer interest.

“Beyond the friendliness of user interfaces, the availability of a variety of applications is the key factor attracting consumer interest to smart phone products,” Teng said. “Thus, different players at various segments of the supply-chain are starting to build mini-ecosystems, including applications, in order to attract consumers and gain their loyalty. Microsoft’s launch of MyPhone, Nokia’s Ovi and the Android Marketplace all represent different approaches to building such an ecosystem.”

To retain subscribers and to reduce churn rates, network operators must differentiate themselves through device and service offerings, Teng added. Thus, additional proprietary customization on the user interface is required.

With the arrival of open operating systems, increasing vertical integration among device manufacturers and platform providers, the flourishing of widgets and the growing phenomenon of social networking, network operators must either share the total available market for service revenue with the content providers and application developers, or include them as partners in business development.