WirelessWeek.com

The past year has been a good one for handset manufacturers worldwide, with about 1 billion phones sold. But as good as it has been for handsets generally, it has been even better for smartphones. That segment is the fastest growing, and most analysts expect the category to continue to expand in the years ahead.

The smartphone operating system (OS) market has undergone a reshaping as well. Although Symbian continues as the dominant platform, Microsoft Windows Mobile and Linux are gaining market shares. Some of the minor operating systems are falling behind or disappearing.

British research firm Informa says 2006 smartphone sales increased about 40%, while In-Stat puts the number closer to 50%. That comes after sales tripled in 2005 as smartphone shipments really started taking off. In-Stat analyst Bill Hughes says the final tally on 2006 smartphone sales is expected to show that almost 80 million devices were purchased.

Informa says price reductions will drive strong sales for low-end smartphones because these devices still will handle multimedia and rich features. The firm forecasts a 46.7% compound annual sales growth for these devices through 2011. Informa predicts nearly one-half of all phones sold in 2011 will be smartphones capable of more than basic communications. Basic phone sales will decline over that period.

"While the handset market continues to enjoy healthy growth, vendor differentiation is becoming increasingly complex owing to the growing number of features and functionalities these devices are required to handle," says Informa analyst Malik Saadi. "Market segmentation continues to challenge mobile OS and application platforms developers to offer appropriate software for each segment."

Smartphone sales have been so strong that Symbian CEO Nigel Clifford suggested at a smartphone show in London last fall that smartphones are the PCs of the future. Another Symbian manager, John Forsyth, head of propositions, said many people will use smartphones instead of PCs within five years.

Symbian has been the leader in the smartphone OS since the category started, primarily because the world's largest handset manufacturer, Nokia, has adopted it. In-Stat says 62.3% of the smartphones sold in 2006 used Symbian, although that has tapered off from 85.5% in 2003 and 77.8% in 2004.

Linux-based smartphones are the second most widely sold with 19.6% of the market, In-Stat says, although the majority of those are for China. Microsoft's Windows Mobile and Pocket PC platforms are in third with 8.4%, followed by Research In Motion (RIM) at 6.8% and Palm at 2.6%. Hughes sees Linux smartphones becoming dominant by 2008, followed by Symbian and Microsoft.

The future of the smartphone OS market took a little twist last fall when Vodafone announced it was going to standardize its consumer smartphone platforms on three operating systems: Symbian Series 60, Microsoft Windows Mobile and Linux. Microsoft said it was working with other operators who are interested in the same kind of standardization. Vodafone's decision, which was only for consumer handsets but seemingly confined RIM to the enterprise, left out a number of other operating systems. Out in the cold were the Palm OS and Sony Ericsson's use of Symbian for smartphones, which uses the UIQ interface rather than Series 60.

What if other operators make a similar choice? One of the operating systems left off Vodafone's map was SavaJe, a Java-based system which won "Device of the Show" for its Jasper S20 prototype phone at last spring's JavaOne conference. Vodafone had invested in SavaJe, but the Massachusetts startup ran out of financing last fall and laid off most of its employees. Vodafone is rumored to have asked SavaJe to work on a platform using Linux, but the company apparently ran out of money for the project.

Analyst Hughes is skeptical that Vodafone will stick to its guns on three operating systems because the list is too small. But he thinks standardizing on a select smartphone OS group makes sense. Another OS that seems to be fading is the Palm platform. Palm had spun off the platform to its subsidiary, PalmSource, which has subsequently been purchased by Access, renamed and refocused on Linux. The handset manufacturer continues to make Treos using the Palm OS, but also has started making phones with Microsoft Windows Mobile, giving it a dual personality.

Palm also recently licensed on a perpetual basis the source code for the Palm OS Garnet edition, effectively bringing the OS back home. Garnet is the Palm OS version used in most current Treo handsets – including the Treo 680, launched by Cingular in late November.

Marlene Somsak, vice president for corporate communications, says Palm plans on evolving Garnet in new products going forward. "We'll develop and innovate on top of Garnet," she says. "I'm not ready to talk about the timing, but our broad goal is to innovate and deliver valuable new products and solutions."

Palm also plans to continue with Windows Mobile products. "This dual-OS strategy is serving us well," Somsak says. "We believe in giving customers a choice. Our carrier customers seem to like that."

Whatever Palm's future may be with the Palm OS, its biggest future may be with the Windows Mobile platform. Microsoft has been open to allowing its OS to be modified enough that device manufacturers can give it differentiation.

Scott Horn, general manager of Microsoft's Mobile & Embedded Devices Division, says the software company will work with its manufacturer partners and operators to differentiate the user interface. Horn also says Vodafone selected Windows Mobile as one of its three OS choices because of the huge developer community Microsoft enjoys.

After several years of trying, it appears that Microsoft has finally started to grab significant market share with its mobile operating systems. The company says there now are about 12 million Windows Mobile devices in users' hands – double what it was in 2005. In-Stat expects 14 million Windows Mobile devices will be sold in 2007, which will further Microsoft's market gains.

As smartphone sales continue to grow in the years ahead, it looks like more of a horse race among operating systems than it has been in the past.