Smartphones on the Fast Track, but to Where?


The year ahead in the smartphone segment will be extraordinarily interesting. On one hand, the economy is in recession, if not downright crisis. On the other, smartphones are a technology that people want and for which they are willing to pay. Will they be able to? Is the number of devices and vendors in and entering the market likely to overwhelm suddenly soft demand?


This GigaOm piece speculates on a report in The Wall Street Journal that Dell is planning a couple of devices based on the Android and Windows Mobile operating systems. The writer says that rumors about Dell getting into the sector are not new, but that Michael Dell has never been pinned down. The writer also says Dell has a poor track record when it moves beyond its core competency. The two phones under consideration are said to be slider and touch-screen models. The blogger seems fairly skeptical, but does say that the presence at Dell of Ron Garriques -- who headed up Motorola's mobile phone efforts when the RAZR was released -- is a good sign.


ABI Research suggests two things that are not surprising. The first is that cell phone growth was strong in the first half of 2008 and got progressively worse during the second half, culminating in a fourth quarter that was about 10 percent below the year-ago quarter. The other expected result was that smartphones essentially held their own or improved during the year. Research in Motion's market share grew .9 percent and Apple's .8 percent. The two companies are expected to continue growing, despite the dire economic picture. HTC, maker of the Android-based G1, is expected to thrive as well.

Carriers also are becoming more reliant, if not dependent, on the popularity of smartphones. Seeking Alpha does the forensics on reports from AT&T and Verizon. Both companies are looking to smartphones to mitigate otherwise poor results. In AT&T's care, the most striking statistic for the fourth quarter was that 1.9 million of the 2.1 million net subscriber gains were related to the iPhone. Even with that push, the carrier's subscriber gains were down 21 percent compared to the year-ago quarter.


For Verizon, the arrival of the Blackberry Storm was a good thing. The story says that smartphones comprised 37 percent of sales in the third quarter and 30 percent for the third. The company's wireless revenue grew 12.3 percent to $12.8 billion in the fourth quarter and 12.4 percent to $49.3 billion during the year. The reporter attributes the gain to the Storm.

Perhaps the growth will not be driven solely by mobile applications. Expect smartphones to merge more fully with the PC. Of course, this is a concept that interests Microsoft. The company recently applied for a patent for technology that uses a cradle approach to enable a smartphone to act like a traditional PC and link to a number of peripherals-storage, printers, speakers and others-through USB connections. The story, which includes a link to the patent application, says the iPhone is the best existing example of the merger of the PC and the smartphone. The increasing power of mobile devices makes such hybrids inevitable.


Smartphones are moving from exotic rarity to commodity with lightning speed. Every penny counts in such an environment. If they do become commodity or near-commodity items, iSuppli's investigation into the relative costs of two of the main players -- the iPhone 3G and the BlackBerry Storm-will become more relevant.


That day is not upon us. However, there are many significant trends pointing to far more plentiful and lower-priced smartphone devices. On New Year's Eve, I wrote a post highlighting some of the trends in the sector, including the news that the iPhone 3G was on the shelves at Wal-Mart. Clearly, there is a tremendous amount of innovation yet to come, and smartphones are not nearly a commodity. The sector, however, is in a precarious position: It had the misfortune of hitting an important point in its evolution at the precise moment prospective customers' wallets are historically thin.