Gartner's 2Q report seems to reflect the findings of other mobile phone studies in recent months, which show smartphones growing steadily while feature phones drop. A boom in high-end sales would seem to be somewhat paradoxical given the recession, but it has been widely reflected in other studies. The only recent sour note in the smartphone market appears to be HTC's revised estimate that its smartphone sales are likely to be lower than expected later this year.

According to Gartner, rampant innovation in smartphones, combined with the recession, has led to a "sandwich" effect. In other words, consumers are either opting for smartphones or else scaling back to low-cost handsets, leaving the mid-range feature phone segment to wither.

"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," stated Carolina Milanesi, research director at Gartner. "Touchscreen and QWERTY devices remained a major driver for replacement sales and benefited manufacturers with strong, touch-focused mid-tier devices. However, the decline in average selling price (ASP) accelerated in the first half of the year and particularly affected manufacturers that focus on mid-tier and low-end devices, where margins are already slim."

Nokia is said to have maintained its leadership position with 105.4 million in 2Q unit sales, representing 36.8 percent of the mobile phone market, compared to 39.5 percent in 2Q 2008. However, Gartner notes that Nokia's high-end N97 smartphone met with "little enthusiasm" since its 2Q launch, and has sold only 500,000 units. By comparison, Apple's iPhone 3GS sold one million units in its first weekend.

"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," stated Milanesi.

As was noted in a recent ABI Research study, Samsung and LG both had strong 2Q numbers, building on a strong year all around. Samsung was said to have sold 55 million units and LG 30.5 million units during the period. Samsung, which recently introduced its first Linux smartphone in the Samsung i7500 (pictured), will continue to gain market share in the second half of 2009 "to close the gap with Nokia," says Gartner. LG, meanwhile, will continue to focus on lower-tier devices for emerging markets, especially in China.

Motorola's sales of 15.9 million units were slightly above expectations, but Gartner noted that the company has lost most of its share of the Western European market, selling fewer than one million units. Sony Ericsson's market share dropped 2.8 percentage points year-on-year, and its volume dropped 41 per cent, says Gartner. "Sony Ericsson has neglected to exploit key trends such as QWERTY products for messaging and e-mail, internet browsing and navigation," stated Milanesi.

Smartphone sales keep on rolling

Worldwide smartphone sales totaled an impressive 40.9 million units in the second quarter, which was line with Gartner's forecast of 27 per cent year-on-year sales growth for 2009, says the research group. "Given the higher margins, smartphones offer the biggest opportunity for manufacturers," stated Milanesi. "It is the fastest-growing market segment and the most resistant to declining ASPs."

In the smartphone market, the list of top vendors is completely different except for Nokia, which maintains its top position with 18.4 million units and a 45 percent share, down only two points from its 2Q 2008 share. Research In Motion (RIM) came next with 18.7 percent share on 7.6 million units sold of its BlackBerry phones, says Gartner. Apple was said to come next with sales of 5.4 million units, which represents a growth rate of 51 percent.

HTC, which is primarily known for its Windows Mobile phones, but which now has two Android phones on the market -- the much-anticipated Hero will be its third -- ranked in the number four slot. As noted earlier, HTC now expects 2009 revenue "to decline by low- to mid-single digits year-on-year, far below its previous outlook of ten percent annual growth," says Gartner, which pegged the dip in fortunes to internal product delays.

Android yet to crack two percent mark

Gartner did not offer a detailed breakdown by operating system (OS), but noted that Symbian held 51 percent share of the overall mobile phone market, down from 57 percent a year ago, primarily at the expense of growth by RIM and Apple. Android's share was just under two percent of the market, yet Gartner expects much greater growth in the fourth quarter, primarily at the expense of Symbian and Windows Mobile.

As for the latter, Gartner notes that Microsoft's share continued to drop year-on-year to account for 9 percent of the market. Yet Roberta Cozza, principal analyst at Gartner, appears to see glimmers of hope when she states, "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."

Palm's Palm Pre (pictured at left) arrived late to the second-quarter party, and Palm ended up ranking tenth in the smartphone market overall. "This device attracted a lot of media attention but showed mixed results at the cash register as sales only reached 205,000 units," stated Cozza. "Gartner remains concerned about [Palm's] ... ability to gain traction outside the US market, where its brand is less strong."

One interesting Gartner conclusion is that mobile phones will see competition from netbooks and ebook readers, although perhaps in a roundabout way. "Mobile operators are likely to drive competition among manufacturers as they start selling e-book readers and mini-notebooks from other manufacturers to foster mobile broadband subscriptions," stated Milanesi. "Operators are also starting to subsidise e-book readers and mini notebooks on contract and this means that there will be less subsidy available to drive sales of mobile phones and smartphones. In turn, operators will demand lower prices from phone manufacturers."

Frost & Sullivan: App store growth driven by free apps

The smartphone has changed the way mobile applications are distributed, fueling a growing market for sales at mobile app stores, which will reach 6.67 billion downloads in 2014, according to a Frost & Sullivan study on the U.S. smartphone app store market.

Smartphones have spawned "newer types of targeted app stores" which enable device owners to purchase content from outside the operator environment, says Frost & Sullvan. The fast growth in mobile apps is also pushed by "a large number of inexpensive or free mobile applications that leverage the next-generation technical capabilities of the target device," says the study.

Apple, Google, Nokia, Palm, and Microsoft have either already introduced app stores or are in various stages of app store rollouts, says Frost & Sullivan. A vast majority of their apps are free to the end user, significantly driving adoption in the U.S., says the research group. Despite these positive trends, app stores will be challenged to ensure service differentiation, as well as optimal management of large app store businesses, says the report.

What's needed to address the differentiation issue is a novel business model, sales approach, or technological capability in the app store infrastructure resulting in an experience that is as radical as when Apple introduced its first app store for the iPhone, says the report. This is easier said than done, however.

"Unless the app store providers establish exclusivity agreements with application developers -- something that is not feasible for a large majority of applications -- it will be difficult to provide enough differentiation through the app stores," stated Frost & Sullivan analyst Vikrant Gandhi.

App store providers will need to work with multiple application providers and offer them sufficient incentives, says the report. Independent, third-party app store providers such as Handango, Handmark, and PocketGear may need to be tapped to run the app store profitably with adequate service differentiation, it continues.

"Outsourcing or white-labeling of the app store business might become a good idea in the long run since a device vendor or an operating system provider may not want to commit large resources to manage the business," stated Gandhi.

Availability

Gartner's report, "Competitive Landscape: Mobile Devices, Worldwide, 2Q09," is available now for $1,295. More information may be found here.

Frost & Sullivan's "An Insight into the U.S. Smartphone Application Storefront Market" study is available now. More information may be found here. 

• 223 million open source smartphones by 2014?
• HTC now says 2009 revenue will fall
• Handset market shows signs of turnaround
• Samsung's Android phone to launch in Germany
• Studies: Android ready to eclipse iPhone
• Study: Android to lead smartphone growth
• Smartphones strong, despite recession
• Navigation smartphone launches next week in Taiwan
• T-Mobile sells a million Android phones