Smartphone Growth To Accelerate

Zacks Investment Research

According to a recent release by research firm iSuppli Corp, global smartphone shipments are expected to increase 105% to 506 million units in 2014 from 246.9 million expected in 2010.

The research firm said that the smartphone unit shipment growth of 35.5% expected in 2010 will drive the mobile phone market. Overall mobile handsets are expected to grow 11.3%.

This growth will be fueled by new smartphones from large handheld device companies, such as Google Inc. (NASDAQ:GOOG), Microsoft Corp. (NASDAQ:MSFT), Nokia Corporation (NYSE:NOK) and Research in Motion Ltd (NASDAQ:RIMM). While the wireless market is quite competitive, the surge in smartphone units indicates significantly higher growth potential for leaders such as Apple Inc. (NASDAQ:AAPL).

Apple has dominated the U.S. smartphone market and is expected to further strengthen its position through the launch of a fourth generation iPhone. 

The new iPhone will be thinner than the previous generation, with a higher resolution display and a front-facing camera for videoconferencing. The most important feature is its superior ability for multitasking, such as listening to music and simultaneously reading email via updated iPhone software (OS4).

The new iPhone is expected to be priced at $199, while the current iPhone 3GS is expected to see a price cut to $99. This could definitely drive higher demand for Apple’s iPhones.

Overall iPhone unit sales were 8.75 million during the most recent quarter (second quarter of 2010), representing 131% unit growth over the year-ago quarter and the highest in the company’s history. iPhone sales represented approximately 40% of the company’s total revenue.

The increase was driven by strong international demand for the smartphone as well as the addition of new carriers in key overseas markets.

Apple’s market share represents about 3% of the overall cell phone market, and ranked no. 6 according to iSuppli in the global cell phone market in the first quarter. Wall Street expects Apple to sell a total of about 36 million iPhones in its fiscal year ending 2010, which is a whopping 80% increase from over 20 million iPhones units sold in fiscal 2009.

Apple is expected to release the iPhone OS4 — currently in beta testing — which should further drive iPhone sales. Although AT&T Inc. (NYSE:T) remains the exclusive U.S. carrier for the iPhone, the company has been adding new mobile carriers to sell its products in other countries such as Vodafone (NYSE:VOD) in the U.K and Verizon Wireless (NYSE:VZ) in the U.S. The company has iPhone distribution agreements with 151 carriers in 88 countries.

Longer-term, we believe that AAPL’s continuous effort to expand into international markets including China, its competitive pricing strategy and addition of new carriers will drive tremendous growth at Apple.

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