Smartphone sales slow amid troubled economy

Smartphone sales slowed in the third quarter of 2008, market research firm Gartner said Thursday.

The firm reported that the growth in sales of smartphones around the world only grew 11.5 percent during the third quarter. The firm also said that this was the weakest growth it has seen in the sector since it began tracking smartphone sales.

Gartner had previously reported that first quarter sales grew about 29.3 percent in 2008 and second quarter sales were up about 15.7 percent compared to the same quarters a year earlier.

In total, smartphone manufacturers sold about 36.5 million devices during the third quarter of 2008, the firm said.

Smartphones, which offer more computer-like features, such as e-mail and Web browsing, have become the biggest growth engine in the mobile handset market. While sales of basic cell phones have dropped off dramatically for many phone manufacturers, smartphones have continued to grow. But it looks like that growth is being curtailed by the weak economic outlook throughout the world.

"The current economic climate is negatively impacting sales of higher end devices," Roberta Cozza, principal analyst at Gartner, said in a statement. "Going forward, we should expect the smartphone device market to continue to grow but at a slower pace."

While smartphones are typically more expensive than regular mobile phones, Gartner's Cozza also points out that expensive data plans are also hindering growth of these devices.

"Although leading mobile operators are subsidizing more smartphones, to reach lower prices they tie the device to two year contracts with monthly data plan rates which remain too expensive for the mainstream user," she said.

Nokia, the world's largest maker of mobile handsets and the largest producer of smartphones, continued to the lead the market with 42.4 percent market share in the third quarter of 2008. But for the first time, the company recorded a decline in sales of about 3 percent compared to the same quarter a year ago.

Also on Thursday, Nokia cut its global outlook for sales of handsets for the second time in three weeks. The company warned that the slowdown in the market is occurring much more quickly than it had originally expected. The company said it now expects the volume of sales to fall at least 5 percent next year compared to 2008 levels.

BlackBerry maker Research In Motion came in second in the smarthphone market with a market share of about 15.9 percent. But like Nokia, RIM has also warned that it expects sales to slow down. Earlier this week, the company cut its sales and profit targets for its fiscal third quarter.

Apple, which took third place in smartphone market share with 12.9 percent, saw the biggest jump in growth. In the third quarter of 2007, the company only had about 3.4 percent market share. Apple, which uses its own Mac OS X operating system on its phones also overtook Microsoft for the first time in the mobile operating system war. Apples' OS X software ran on 12.9 percent of phones sold, while Microsoft Windows Mobile lost about 3 percentage points and was available on 11.1 percent of phones sold.

Competition in the mobile handset market is only likely to intensify as new players such as Google's Android phones come onto the market. The entree of Android and other open source mobile operating platforms is likely to cut into Microsoft's business, while Nokia is likely to continue to feel pressure from Research In Motion and Apple.

One thing is clear. Even though sales of smartphones are slowing, these devices still represent the biggest growth opportunity for handset makers. But the success of the these devices will likely rely not only on their design but on the software and applications that run on them.