Nokia Losing Grip on Smartphone Sector

Nokia's (NOK) dominance in the smartphone market is being challenged by rivals Research In Motion (RIM) and Apple (AAPL), according to research released Thursday by technology analyst firm Gartner.

With smartphone growth slowing dramatically, RIM and Apple are using their latest touch-screen devices to chip away at Nokia's market share.

Although smartphone shipments in the third quarter of 2008 grew more than 11% compared to the same period last year, this was the lowest growth rate since Gartner began tracking the industry in 2004.

"The current economic climate is negatively impacting the sales of higher-end devices," said Roberta Cozza, principal analyst at Gartner, in a statement. "Going forward, we should expect the smartphone market to grow, but at a slower pace."

Gartner's figures are more bad news for companies such as Nokia, RIM, Apple and Palm(PALM), and they reflect the extent to which consumers are reining in their technology spending.

Even Nokia, which, according to Gartner, holds more than 40% of the smartphone market, is feeling the pinch. The Finnish technology giant, for example, cut its fourth-quarter estimates for mobile device shipments Thursday, citing "insufficient visibility" in the market.

Gartner's quarterly research reveals that, for the first time, Nokia experienced a decline in its third-quarter smartphone sales of 3% year over year.

"Nokia is feeling the pressure from increased competition in the smartphone market," wrote Cozza. The company's third-quarter sales were not helped by the popularity of touch-screen smartphones such as Apple's iPhone or RIM's BlackBerry Storm, she added, explaining that Nokia's touch-screen N97 will not be available until the first half of 2009.

With a glut of gadgets now flooding the market, Nokia is not the only phone manufacturer wrestling with the effects of the recession. Shares of Palm plummeted almost 40% Tuesday after the company issued a second-quarter revenue forecast well below analysts' projections. RIM also lowered its forecast for revenue and earnings per share earlier this week, citing the impact of the strong dollar and the weak U.S. economy.

Gartner nonetheless reports that 36.5 million smartphones were sold during the third quarter. Nokia accounted for more than 15 million of the devices, followed by RIM and Apple, which sold 5.8 million and 4.7 million smartphones, respectively. Whereas Nokia sales slipped year over year, RIM's smartphone shipments were up more than 80%, indicating that the company will shake off its current problems.

Apple's smartphone business, however, is exploding, and the firm's sales grew more than 327% year-over-year, clearly boosted by the summer launch of the iPhone 3G.

For the first time, iPhone sales exceeded those of Microsoft(MSFT) Windows Mobile devices during the third quarter, according to Gartner. The analyst firm also found that open-source initiatives like Google(GOOG)'s Android and the Symbian Foundation are challenging Windows Mobile.

Despite its fourth-quarter forecast, Nokia's shares closed up 40 cents, or about 3%, to $13.70 in Thursday trading.

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