(Reuters) - Booming demand for new, cheaper smartphones helped fuel a recovery in the overall handset market late last year, but rivalry for a piece of this lucrative business will turn fierce in 2010 as many new vendors enter the market.
"The smartphone market will become ultra-competitive in 2010," said analyst Neil Mawston from research firm Strategy Analytics (SA).
"The smartphone wars will be good news for consumers, but the fierce competition will inevitably place downward pressure on vendors' pricing and margins," he said.
South Korean firms Samsung Electronics and LG Electronics, the world's No. 2 and No. 3 handset vendors, are planning to sharply increase their very low smartphone sales, while new players like Huawei and Dell are strengthening their offerings.
"An influx of new players, an oversupply of devices and aggressive pricing will strain profit margins," said CCS Insight analyst Geoff Blaber.
HTC, the world's No. 4 smartphone brand, said last week it will be one of the first to suffer from increasing competition when it forecast a decline in gross profit margin in the first quarter of 2010.
"Those with a tightly integrated device and service offering -- like Apple and RIM -- will be the winners in 2010," said CCS' Blaber.
Strategy Analytics said on Monday the smartphone market grew 30 percent year-on-year in the December quarter to 53 million phones, the highest ever.
The growth was part of the overall market recovery in October-December thanks to an improving global economic picture. SA estimated the cellphone market grew 10 percent from a year before, halting four straight quarters of contraction.
Finland's Nokia, which continues to sell more smartphones than its two closest rivals -- RIM and Apple -- combined, shipped 20.8 million smartphones in the December quarter, up 38 percent from a year ago.
An improving position in the smartphone market -- helped by messaging phones like the E71 and E72 -- lifted Nokia's sales and profits in the December quarter above analysts forecasts, sending its shares soaring last week.
Nokia's average smartphone prices dipped to 186 euros ($261) from 190 euros in the third quarter. Blackberry maker RIM shipped 10.7 million smartphones in the December quarter, remaining comfortably ahead of Apple's 8.7 million iPhones, Strategy Analytics said.
"RIM continues to expand its international footprint beyond the core territory of North America deeper into Western Europe and parts of Asia," the research firm said. (Editing by David Cowell, John Stonestreet)