Smartphone sales pick up steam in U.S.

Despite the recession, Americans are buying smartphones, providing the only bright spot in an otherwise bleak cell phone market.

Marguerite Reardon Former senior reporter
Marguerite Reardon started as a CNET News reporter in 2004, covering cellphone services, broadband, citywide Wi-Fi, the Net neutrality debate and the consolidation of the phone companies.
Marguerite Reardon
2 min read

Nearly a quarter of all handsets sold in the U.S. during the fourth quarter were smartphones, according to the NPD Group, a market research firm.

A new study released on Tuesday indicates that about 23 percent of all handset sales in the U.S. during the fourth quarter of 2008 were smartphones. This was up from 12 percent of all handset sales in the fourth quarter of 2007.

But as sales soared, prices for these advanced phones dropped. In fact, the average price of a smartphone during the quarter dropped by 23 percent from $216 in the fourth quarter of 2007 to $167 during the fourth quarter of 2008, NPD said. Apple's new iPhone 3G, priced at $199 with a two-year service contract with AT&T, helped lead the growth in smartphone volumes, but also led the industry in terms of declining prices.

The $200 price range appears to be the sweet spot for consumers in this market. And other manufacturers including Research In Motion with its Blackberry Storm on Verizon Wireless, the T-Mobile G1, and the-soon-to-be-launched Palm Pre from Sprint Nextel all fall within this price range.

NPD also noted that high-speed data services are becoming more central to smartphones. And about two-thirds, or 66 percent, of smartphones sold last year now use 3G wireless networks. This is compared with about 46 percent of smartphones that used 3G a year ago.

This is good news for mobile operators, which are locking consumers into expensive data plans in exchange for subsidizing their handsets.

But as competition heats up, experts like Ryan Reith of IDC expect carriers to further subsidize these devices to compete with other carriers. The iPhone has been holding its value very well. But carriers are already starting to cut prices and offer special deals on other smartphones.

Only a month after it hit the market, the G1 started selling for $148 from Wal-Mart. And three months after it launched the Storm, Verizon Wireless is now offering a special "buy one get one free" promotion that allows customers who buy any BlackBerry device, including the Storm, to get another one free.

While these subsidies could attract new customers, they will also cut into mobile operators' profits.

NPD Group suggests that carriers and retailers look toward selling more accessories to help boost profits. The market research group found that more than half or 52 percent of smartphone buyers purchased an accessory when they purchased their phone, while only 41 percent of all cell phone buyers bought an accessory at the time of purchase.