Ahead of a Dismal Christmas Shopping Season, Wireless Banks on Smartphones

By Tara Seals

Despite fears that the Christmas season for handsets is shaping up to be nightmarish for cell phone makers thanks to the global credit crisis and worsening U.S. economy, smartphone makers are forging bravely ahead.

As you might be aware, third-quarter results from the top five handset makers worldwide left much to be desired: Nokia, Motorola Inc., LG Electronics and Sony Ericsson all reported that growth had reached a virtual standstill, while Samsung posted modest gains. Overall, the cell phone market came in at a stagnant 3 percent, according to research firm Canalys. That’s compared with a healthy 10 percent growth in previous quarters.

But amid this, handset makers and the carriers they rely on are taking steps to capture what little sales might be gotten for the fourth quarter and beyond, and are relying heavily on smartphones to do it. Nokia for one is ponying up $100 million in ads to promote its smartphones, it was reported this week.

And then consider the price-cutting support and expensive promotions being put behind the recent flurry of product launches — most of which were likely planned before the global meltdown in October. For instance, AT&T Inc. and Samsung announced on Friday the Samsung Eternity, a touchscreen number made for AT&T Mobile TV, and are sweetening the pot by offering a 30-day free trial of the television service for new customers. To boot, the phone’s being sold starting at $149.99 with a two-year contract and $50 mail-in rebate.

Then there’s the Verizon Wireless launch of the BlackBerry Storm smartphone on Nov. 21. The No. 2 domestic operator has been running a sequential and slick ad campaign that first teased the viewer, then showed a glimpse of the device, and finally demonstrated its features. The ads continue to roll on. The Storm is BlackBerry’s first touchscreen device, retailing at $199 with a two-year contract.

And consider T-Mobile USA’s G1 handset, based on the Google Android platform. In addition to selling the device for the iPhone-undercutting price of $179, it’s also letting Wal-Mart market it for a discount at $148.88. T-Mobile said during the launch this fall that it was planning one of its biggest advertising campaigns ever to support the rollout.

Apparently Sony Ericsson didn’t get the memo about hawking smartphones with cheap-ish pricing and the advertising — at least when it comes to the Xperia X1 touchscreen handset with Windows Mobile, scheduled to launch Nov. 29. The sleek device is not locked to a carrier and as a result will carry a hefty $799 price tag. There’s also been little to no advance advertising. To be fair, this somewhat telegraphs Sony Ericsson’s faith in people’s hunger for unlocked smartphones.

So what gives? Are the bets being taken good ones, or will handset makers and carriers lose money with all this upfront outlay?

Compared to the overall cell phone market, the smartphone category grew 28 percent year after year to 40 million units.

“The smartphone market in the United States has grown rapidly since the introduction of the iPhone in 2007,” said Jill Meyers, analyst at In-Stat, in a brief. “Demand for smartphones, and the applications that run on them, provides an increasingly profitable revenue source for handset manufacturers, mobile operators and application developers.” She noted that while the outlook for smartphone shipments is not optimistic in the next 18 to 24 months as industry experts hoped at the beginning of the year, growth is expected to continue: “The introduction of Google’s Android smartphone, the upcoming revamped iPhone, and Nokia’s N-Gage platform will all provide support in sales in this area.”

There’s more in the bet for carriers than just the sale itself. In-Stat found in a consumer mobility study that more than 95 percent of respondents who use smartphones also have used lucrative mobile data applications or services in the past 12 months. They also plan to spend significantly more money ($195.70) on average for their next handsets than traditional handset users ($121.33).