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Smartphone share of cell phone sales set to soar

The devices will snag 37 percent of the overall handset market by 2014, up from 16 percent in 2009, predicts Pyramid Research.

Smartphones will capture 37 percent of the worldwide cell phone market by 2014, a leap from 16 percent in 2009, predicts a new report from Pyramid Research.

The report, released late last week, sees much of the growth coming from outside the U.S., notably in emerging markets. Across the globe, China is likely to outpace the U.S. as the largest smartphone market next year. Latin America will be the fastest-growing region over the next five years, with a compound annual growth rate (CAGR) of 48 percent for smartphone sales, forecasts Pyramid.

"Pyramid expects China to capture the No. 1 position in 2010, driven by operators' aggressive promotion of smartphones using wider portfolios, more attractive pricing for services, and new initiatives," Omar Salvador, senior analyst at Pyramid Research, said in a statement. "Brazil, India, Turkey, and Nigeria will be the fastest growing markets over the next five years with CAGRs of 43 percent, 39 percent, 37 percent, and 34 percent, respectively. Latin America will be the fastest growing region at a compound annual growth rate of 48 percent, followed by Africa and the Middle East with a 39 percent CAGR."

With Pyramid forecasting sales of 1.8 billion smartphones over the next five years, the market looks like a huge opportunity for handset makers and wireless carriers. However, the report notes that growth in mobile subscriptions has been slowing, putting pressure on the industry to enhance data services and applications, which are seen as two primary drivers for smartphone purchases. Pyramid believes that handset makers and carriers will need to work together more closely to capitalize on the huge sales potential of smartphones, especially in emerging markets.

But a unified smartphone strategy has proven challenging for the industry, the report notes, due to differences in payment methods, subsidies, and the levels of competition.

In countries like the U.S. where there is no limit on subsidies and there is higher level of competition, operators such as AT&T use aggressive subsidies, unlimited data plans, and specific smartphones models--i.e., Apple's iPhone--with exclusive distribution to woo customers. By contrast, Russia prevents handset subsidies and focuses more on value-added services, lower prices, and free initial test periods for smartphone consumers.

"Understanding local conditions will be vital for operators, smartphone vendors, and OS developers, as operator strategies differ substantively across markets based on the method of payment (postpaid or prepaid), the prevalence of subsidies, the level of competition, as well as the market shares of operating systems," Salvador said.