Apple

Consumer demand for smartphones seems to be unstoppable.

In the third quarter, vendors shipped a record 43.3 million devices, up 4.2 percent from last year's third quarter and up 3.2 percent from this year's second quarter, says a report released Thursday by market researcher IDC.

(Credit: IDC)

Among smartphone vendors, Nokia still enjoys the greatest market share, according to IDC, with a 37.9 percent slice for the third quarter. ... Read more

As Apple and Research In Motion have won a greater share in the Wi-Fi handset market over the past year, Nokia has lost share.

Though Nokia is still the leading vendor for dual-mode smartphones (Wi-Fi and cellular), its market share dropped to 35 percent in the second quarter, compared with 50 percent in the same period a year ago, according to a report released Monday from In-Stat.

The report "Wi-Fi in Mobile Phones: Dual Mode Becomes the In Thing" tracked the major Wi-Fi phone vendors, including Nokia, Apple, Research In Motion, HTC, and Samsung. Among those, Apple has enjoyed the greatest growth in market share, from 3 percent in the second quarter of 2008 to 20 percent in this year's second quarter.

Market share for both RIM and Samsung has also weakened the past few quarters, though less so than Nokia's. RIM's 15.7 percent chunk of the market for the second quarter of the year was down from its first-quarter high of 17.6 percent. Samsung's share has been relatively flat but usually dips a bit from the first to the second quarter, notes In-Stat.

In sheer unit volume, Nokia has done well the past few quarters, with 9.3 million Wi-Fi handsets shipped in the second quarter of the year compared with Apple's 5.2 million shipments. However, Nokia's shipments have dropped since the first quarter of 2008 when it saw 12 million units fly out the door. Over the same period, Apple, RIM, and HTC have seen their shipments grow.

As the No. 2 Wi-Fi handset vendor, Apple has also outsold third-place RIM in dual-mode phone shipments, says In-Stat. Though RIM still has a larger market presence, not all of its Blackberry devices include Wi-Fi. HTC and Samsung rounded out In-Stat's list as the fourth and fifth top Wi-Fi handset vendors, respectively.

(Credit: In-Stat)

The report also detailed the growth of the Wi-Fi smartphone market overall. The industry shipped 37 million handsets in 2007, and 103 million units in 2008. That rise is because of several factors, notes In-Stat, including greater functionality, lower prices, and carrier promotions. Initially targeted to the business market, smartphones are also now an entrenched hit with consumers, which In-Stat attributes to the success of the iPhone.

Wi-Fi handset shipments are expected to rise just 25 percent to 128.4 million units for 2009. That compares with a nearly 180 percent jump in 2008.

But In-Stat sees gains ahead. By 2010, the growth rate is likely to climb to 43 percent. Though that rate may not be sustainable, it should remain strong in the coming years. Wi-Fi will also become more prevalent in mobile phones. This year, 11.5 percent of handsets include Wi-Fi; by 2012, that figure will grow to 25 percent, predicts In-Stat.

To compile the report, In-Stat relied on its own data as well as interviews with Wi-Fi equipment vendors.

A recent survey shows that while Research In Motion continues to lead as the smartphone of choice among consumers, Apple's iPhone is quickly catching up.

ChangeWave Research on Tuesday released the results of its week-long September survey of 4,255 consumers, which showed that RIM retains its lead in smartphone ownership with 40 percent market share. That's actually a dip of 1 percentage point since the last survey in June, and the lowest share RIM has registered in two years.

Despite having more models of smartphones, RIM is facing serious competition from Apple, whose iPhone has 30 percent market share among those surveyed. That's an increase of 5 percentage points since June, when the new iPhone 3GS was released.

(Credit: ChangeWave Research)

Among the same group, Palm has maintained a 7 percent share since June. Though it didn't see any growth even with the introduction of the Palm Pre and more recently the Pixi, the two new WebOS-based phones are helping the company to not lose share. Palm has seen its market share of smartphone ownership erode steadily from its peak of 36 percent in June 2006.

When including all manufacturers, the smartphone market is clearly gaining momentum. ChangeWave reports that 39 percent of those polled in September now own a smartphone, an increase of 2 percentage points since June, but more importantly, double the ownership of consumers polled two years ago.

And that momentum is something that PC makers are taking notice of, according to research also released Tuesday from Gartner. The analyst firm believes that more PC makers will start making smartphones to tap into those consumer dollars being spent in that segment. There's far more opportunity for them to court first-time smartphone owners than first-time laptop owners.

Smartphone revenue is expected to reach $191 million by 2012, which is more money than the $152 million users are expected to spend on laptops, according to Gartner. Apple, Sony, Dell, and Acer are the device makers that currently, or have announced they will, sell laptops as well as smartphones.

Nokia is suing Apple over 10 patents the Finnish phone maker says it owns related to wireless handsets.

The largest handset maker in the world is suing the maker of one of the most popular, the iPhone, because, according to a statement released by Nokia on Thursday, Apple has refused to license any of the patents in question. All iPhone models dating back to the original introduced in 2007 are infringing, according to Nokia. Nokia is asking the U.S. District Court in Delaware for an injunction (PDF) on sales of iPhones and for unspecified damages.

"The basic principle in the mobile industry is that those companies who contribute in technology development to establish standards create intellectual property, which others then need to compensate for," said Ilkka Rahnasto, vice president, legal and intellectual property at Nokia. "Apple is also expected to follow this principle. By refusing to agree to appropriate terms for Nokia's intellectual property, Apple is attempting to get a free ride on the back of Nokia's innovation."

Nokia has already reached licensing agreement on the patents in question with 40 other companies, including "most of the major device makers," according to Nokia spokesman Mark Durrant. Apple has thus far refused to cooperate, and filing the lawsuit was a "last resort." The two companies have been in negotiations for "some time," he added.

Nokia says it has spent more than $60 billion (40 billion euros) on R&D related to wireless technology. The 10 patents it accuses Apple of violating are related to making phones able to run on GSM, 3G, and Wi-Fi networks. They include patents on wireless data, speech coding, security, and encryption, according to Nokia.

Apple did not respond immediately to a request for comment.

For every kind of technology you can think of (USB, wall plugs, video game controllers) there's an agreed upon standard. It's arrived at by companies making products that use the technology in question in the context of a standards-setting organization. They'll gather, debate over whose patented technology is best, and also agree in advance that every other company in the standard group will be able to license their patent at a reasonable rate.

Apple is one of a few companies--Nokia wouldn't expand on who the others might be--that is not licensing Nokia's 10 patents. Nokia says that for any phone to run on a GSM, 3G, or Wi-Fi network, it would have to license one of its patents.

Though it is asking the court to halt sales of the iPhone, the general consensus by legal observers and those who follow Nokia, is that it's not actually trying to pull the iPhone off the market permanently--injunctions are always used as leverage in these cases--but rather that it wants Apple to pay its fair share.

"There are companies that are patent trolls, that don't participate in the creation of technology, or they secretly acquire them. Nokia's not one of these companies. They're pretty up front about the patents they own," noted Jason Schultz, director of the Samuelson Law, Technology & Public Policy Clinic at the UC Berkeley School of Law. "They're probably not trying to put Apple out of business...but force Apple to play the same game that every other phone company has to play."

Apple analyst Gene Munster thinks Nokia is looking to extract a royalty payment of 1 percent to 2 percent of every iPhone sold from Apple, which would be about $6 to $12 per phone. With 34 million iPhones sold to date, that would be $204 million to $408 million in back payments Apple would have to pay if Nokia were successful in court. There's also the added risk of something called "willful infringement." Basically, if Apple were to be found in violation it'd have to pay three times the amount of whatever the judgment won by Nokia.

Apple could settle out of court, or it could try to show that Nokia either doesn't own the patents or that they're not valid in this case, both of which would be difficult, said Schultz.

"Invalidating 10 patents is a lot, that's like running the Boston Marathon. It's really hard to do. You might get one, two or even five," he said. "But 10 is a lot."

If it does go to court, strap in for a long ride. This kind of case could take up to two or three years of litigation.

This post was updated throughout at 12:35 p.m. PDT.

Could the new Droid finally be the smartphone to knock the Apple iPhone off its pedestal? Droid partners Verizon, Motorola, and Google are positioning it as such.

The latest Android-based smartphone, the Droid, could debut as early as October 30, according to a cryptic countdown code on Verizon's Web site that promotes the new device.

Verizon has set up its Droid promo page with direct challenges to the iPhone, with such slap-in-the face headlines as: "iDon't have a real keyboard," "iDon't run simultaneous apps," and "iDon't allow open development." And "everything iDon't...Droid does."

The page goes on to tout all that the Droid does offer, including high speed, multitasking, networking, a high-resolution screen, speech recognition, directions, video, music, and more than 10,000 apps.

(Credit: Verizon)

The Droid is the same smartphone formerly known as the Motorola Sholes, so some technical specs have already been known.

The phone will run the new Android 2.0 operating system. It will provide a 3.7-inch touch screen along with a slide-out QWERTY keyboard. The 5-megapixel autofocus and flash camera will offer both still and video recording. Wi-FI, Bluetooth 2.0, and GPS are there as well.

Calls to Motorola, Verizon, and Google for further details were not immediately returned.

But Web sites are already touting the Droid as the hottest phone that will hit the market in awhile.

The Boy Genius Report site says it's already gotten its hands on a Droid, revealing a few key details. The phone is just slightly thicker than an iPhone 3GS, says the site, sporting a "pretty usable," ultrathin, sliding QWERTY keyboard.

Powered by a Texas Instruments OMAP 3430 processor (the same chip used by the Palm Pre), the Droid is the fastest and most impressive Android device that Boy Genius says it's seen. (Google reportedly had a strong hand in its design.) The site also is gushing over the phone's display, calling it the best screen so far on an Android handset.

The TechCrunch site calls the Droid a three-way effort among Motorola, Verizon, and Google. The site says that, according to people who've tried out the device, the Droid is the "most sophisticated mobile device to hit the market to date from a hardware standpoint." TechCrunch sees it as "Android's flagship product, and the first phone that will pose a significant threat to Apple's iPhone."

Verizon has often been a mixed bag for many customers, offering a reliable, high-speed network but lacking a must-have smartphone a la the iPhone.

With its large subsidies to Apple, AT&T doesn't break even on iPhone accounts with high data-usage until the 17th month of a 24-month contract, according to a new report from Yankee Group.

The report, titled "The Golden Subsidy Egg's Goose is Cooked: Welcome to the Brave New Subsidy-Free World," looks at the downside of subsidies paid to manufacturers by cell phone carriers. The report cites AT&T's iPhone contract with Apple as a prime example.

Subsidies have typically helped mobile carriers offer customers free or low-cost devices in order to lure them into buying long-term service contracts. Smartphone owners are happy because they're getting the latest devices at rock-bottom prices. But the surge in data use and the rising cost of grabbing new customers are cutting profit margins for providers, says Yankee Group.

With the mid-2008 launch of the iPhone 3G, AT&T struck a subsidy deal with Apple that slashed the price to consumers to $199 for the low-end version but forced the carrier to bear the upfont costs of each unit. Several published reports have estimated that AT&T's subsidy is at least $300 per phone. (Neither AT&T nor Apple responded to requests for confirmation.)

At the time, AT&T acknowledged that the new deal would impact profit margins and dilute earnings. The company's second-quarter results did show a dip in both revenue and earnings.

AT&T went along with the subsidy because it felt that lower iPhone prices would bring in more customers. But in a catch-22, more customers have also put a strain on the carrier's network, both for voice and data. Ralph de la Vega, CEO of AT&T Mobility and Consumer Markets, said in August that AT&T's wireless data usage jumped almost 5,000 percent from 2006 to 2009.

That strain has made for some unhappy iPhone users and has forced AT&T to scramble in order to beef up its wireless infrastructure.

Removing the subsidy for AT&T would win the company a total return of 33 percent over a two-year contract and reduce the break-even point to eight months, Yankee Group said.

Moreover, unless mobile carriers in general can cut their reliance on subsidies, Yankee Group noted, they may see profit margins fall even further.

"Until now, North American operators have been kings of the devices market, controlling distribution and bearing many of the risks," Andy Castonguay, Yankee Group director and author of the report, said Thursday in a statement. "Rising customer acquisition costs, exclusivity fees and flat-rate pricing are squeezing margins for coveted smartphone users. To reverse this trend, operators must spread the control and risks across OEMs and retailers to offer more affordable options and establish greater levels of clarity and trust with consumers."

Below is a graphic from Yankee Group's report:

Goodbye Pre.

(Credit: Screenshot by Bonnie Cha/CNET)

This post was updated at 2:56 p.m. PDT with a comment from Palm.

Oh dear. We can't say this was a complete surprise, but it looks like Apple made good on its earlier warning and put an end to the Palm Pre-iTunes synchronization with the release of iTunes 8.2.1.

In the release notes, Apple states that "iTunes 8.2.1 provides a number of important bug fixes and addresses an issue with verification of Apple devices." Not wanting to believe the news, we bit the bullet and downloaded the latest version of Apple's music software to our PC and sure enough, the romance is dead.

Just as before, we connected the smartphone to our laptop and selected the Media Sync option on our Pre, but this time, it didn't automatically launch iTunes. Instead, it was only recognized as a mass storage device, and manually launching iTunes did not surface the Pre either (*tears*).

When asked for comment, Palm replied with the same response it had when Apple first issued its warning:

Palm's media sync works with iTunes 8.2. If Apple chooses to disable media sync in iTunes, it will be a direct blow to their users who will be deprived of a seamless synchronization experience. However, people will have options. They can stay with the iTunes version that works to sync their music on their Pre, they can transfer the music via USB, and there are other third-party applications we can consider.

Obviously, this isn't the best news for Pre users, but there are alternative ways to keep the iTunes-Pre synchronization alive. For one, you could just not update to iTunes 8.2.1, or as PreCentral.net points out, there are other third-party solutions, such as doubleTwist and The Missing Sync for Pre, that will allow to sync the smartphone with iTunes.

Anyone else have recommendations or thoughts on this little battle between Palm and Apple? Please share below.

NEW YORK--Collins Osei, who had bought an iPhone 3G last year, came to the AT&T store Friday not to buy the latest-generation iPhone 3G S, but instead he wanted to downgrade to a less expensive Nokia phone.

Nokia 2600

(Credit: CBS Interactive)

Osei said his decision to go back to a basic-feature phone was all about cost. The iPhone and its service plan are simply too expensive, he said. Osei, who is in the middle of his two-year contract with AT&T, had his iPhone 3G stolen recently. But he said replacing it with a new one would cost too much. Instead, he picked up a Nokia 2600 for a mere $43.

But Osei's decision didn't hinge just on the upfront cost of the phone. He also said he was tired of paying the additional $30 a month data charge that is mandatory with the iPhone.

"The iPhone plan was just too expensive," he said. "They made me pay $30 extra a month for data, and I don't really need the Internet on my phone. So I went back to a regular phone. And now I'm on a plan that costs $39.99 a month."

Osei might not be the only consumer out there turned off by the high cost of the iPhone service fee. Unlike previous iPhone launch days, there was no line of people this morning waiting outside the AT&T Time Square store hoping to get the latest iPhone 3G S. In fact, it looked like more customers were leaving the store empty-handed or with other devices than those leaving with new iPhones.

A correction was made to this story. See below for details.

Updated at 2:54 p.m. PDT with with additional information about the volume of NAND chips Apple is reportedly purchasing and its effect on the number of units the company could ship.

Apple has reportedly ordered 100 million units of 8-gigabit and 16-gigabit NAND flash chips, with the bulk of its order coming from its main iPhone chip supplier, Samsung, according to a research report released Monday by a Lazard Capital Markets analyst.

The majority of the sizable order is expected to be applied toward the 16-gigabit NAND, signaling that a 32-gigabyte iPhone is in the works to debut in June, said Daniel Amir, a Lazard Capital Markets analyst.

An order of 100 million 16-gigabit chips, for example, could produce roughly 12 million of Apple's 16GB iPhones, far more than the 7 million iPhones Wall Street expects Apple to make in the second quarter. But the same order of 100 million chips could produce roughly 6 million Apple 32GB iPhones.

Last month, Amir noted in a research report that he had heard from industry contacts that Apple was expected to begin production on a 32GB iPhone in April and May, with a release in early June.

Apple currently has a 16GB iPhone on the market. Wall Street is expecting the computer maker to ship 3 million to 3.5 million of its iPhone smartphones in the first quarter and to virtually double that figure in the second quarter.

Amir said that while the sizable NAND order could be used to dramatically increase production on the 16GB iPhones, that scenario is unlikely, given that Apple appears to be searching for ways to reduce inventory of the 16GB iPhones through special promotions and discounts.

And while the flash memory could be used in a refresh of Apple's iMacs, Amir said the bulk of the NAND order was made with Samsung, Apple's main iPhone chip supplier.

"Historically, Apple's orders with Samsung have been for iPhone flash (memory), since Samsung has worked with Apple in developing special packaging for the iPhone," Amir said.

He added that a large order from Apple also tends to result in a rippling effect through the flash memory market, and he anticipates as much as a potential 20 percent increase in pricing by the other memory makers.

Correction: When it was initially published, this story used an incorrect acronym for the 8-gigabit and 16-gigabit NAND chips. Gigabits are represented as Gb.