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Despite recession, U.S. smartphone market is growing: Study

Smartphones represented 23 percent of all handset sales to U.S. consumers in the fourth quarter of 2008, compared to just 12 percent in the previous quarter, according to the NPD Group.

Led by the release of Apple's iPhone 3G at $199, the average price for a smartphone fell 23 percent from $216 in the fourth quarter of 2007 to $167 last year. AT&T and the iPhone began the trend of the signature touch-screen smartphone, while the arrival of the BlackBerry Storm on Verizon Wireless, the T-Mobile G1 and soon the Palm Pre from Sprint completes the new competitive dynamic.

"We continue to see smartphone unit share -- as a percentage of all handsets sold -- increasing, and it now represents 23 percent of all handsets sold in the U.S. in the fourth quarter, aided in part by declining prices," said Ross Rubin, director of industry analysis for the NPD Group, New York. "Also, improved Internet browsing functionality is motivating consumers to purchase these devices.

"The iPhone continues to be the best selling smartphone that we're tracking, but RIM has the highest market share, in terms of operating systems," he said. "They've been successful with several BlackBerry devices across multiple carriers.

"We saw Android really get on the map in the fourth quarter with the release of the G1."

NPD predicts continued upheaval in the U.S. handset market.

"This is a time of great transition in the smartphone space, because we're going to see more Android-based handsets roll out in 2009, the entrance of Palm Pre in first half of the year and introduction of Palm's new webOS, as the Palm OS fades away," Mr. Rubin said. "There will be a Windows Mobile update as well, version 6.5, which was shown off in Barcelona.

"While business/enterprise is its bread-and-butter, consumers are an important part of Microsoft's mobile strategy," he said. "However, there's likely to be a stronger push around Windows Mobile in the consumer space once we see the next major version, version 7.0.

"That's where Microssoft will expand the integration with Windows 7 Desktop and Windows Live Online, so we likely won't see as strong a push into the consumer market with version 6.5."

While half of smartphones on the market now sold with touch screens, 70 percent of all models instead offer QWERTY keyboards.

HTC's G1 on Google's Android OS has both touch-screen and QWERTY user interfaces. Palm's webOS will debut handsets that support both QWERTY and capacitive touch.

As the AT&T 3G network construction continues, and T-Mobile's begins, high-speed data is becoming more central to smartphones. In fact, two-thirds of smartphones now use 3G networks, compared to just 46 percent a year ago.

With prices continuing to fall, manufacturers and retailers are looking for ways to bolster sales revenues.

One option is to sell accessories, since they can help drive margins for smartphone retailers.

In fact, more than half -- 52 percent -- of smartphone buyers bought an accessory at the time of their phone purchases, compared to just 41 percent among all other phone buyers.

Palm, Apple and HTC all over-index when it comes to accessory purchases at the time of the smartphone purchase, according to the study.

Particularly with RIM's large market share, resellers are apparently missing opportunities to sell more BlackBerry accessories.

The NPD Group compiles and analyzes mobile device sales data based on more than 150,000 completed online consumer research surveys each month.

Surveys are based on a nationally balanced and demographically-representative sample, and results are projected to represent the entire population of U.S. consumers.

Sales figures do not include corporate/enterprise mobile phone sales.

The NPD Group is a provider of reliable and comprehensive consumer and retail information for a wide range of industries.

Today, more than 1,600 manufacturers, retailers and service companies tap NPD to help them drive critical business decisions at the global, national and local market levels.

NPD helps its clients to identify new business opportunities and guide product development, marketing, sales and merchandising.

The firm focuses on the following industry sectors: automotive, beauty, commercial technology, consumer technology, entertainment, fashion, food and beverage, food service, home, office supplies, software, sports, toys and wireless.

While mobile applications continue to increase in popularity, NPD isn't seeing a connection to higher smartphone sales.

"The ability to add applications isn't necessarily driving smartphone purchases so much at this point," Mr. Rubin said. "In fact, if you look at what's going to be the most prominent smartphones in the market in terms of carrier support -- the iPhone, Storm, Pre and G1 -- all of those debuted with limited third-party applications support.

"Apple has been promoting mobile apps very heavily in its ads, and all major vendors are moving to App Stores or marketplaces on the device to build greater awareness and ease access to third-party apps," he said.

"For now, it's more important for smartphones to nail the mobile browsing experience."