Apple Scores With iPhone In 2007, But Can It Sustain Growth?

The Apple iPhone had a big impact on the smartphone market last year, prompting rivals to try to come up with equally innovative designs. But Apple's challenge this year will be in proving that it can sustain growth against fierce competitors, a market research firm said Tuesday.

Apple, which launched the iPhone in late June, took 28% of the U.S. smartphone market in the fourth quarter of last year, behind BlackBerry maker Research In Motion's 41%, Canalys said. Palm was a distant third place with 9% of the market.

Apple's slice of the market was more than the combined share of 21% for all the vendors making devices with Microsoft's Windows Mobile operating system, Canalys said. In Europe, the Middle East and Africa, where the iPhone officially launched part way through the fourth quarter in only three countries, Apple took fifth place behind Nokia, RIM, HTC, and Motorola, respectively; but ahead of established players Sony Ericsson, Samsung, and Palm.

Without a doubt, Apple proved that it can make a difference in the market, and its entry was a wake-up call to the market leaders.

"What it must demonstrate now is that it can build a sustainable business in the converged device space, expanding its coverage and product portfolio," Canalys analyst Pete Cunningham said in a statement.

Apple will have to prove that the exclusive partnerships it has with carriers in different regions of the world will not limit sales, Cunningham said. In addition, Apple will need a broad, continually refreshed portfolio in order to compete against established vendors, which are developing their own innovative interfaces to compete with the iPhone's touch screen.

"Experience shows that a vendor with only one smart phone design, no matter how good that design is, will soon struggle," Cunningham said. "A broad, continually refreshed portfolio is needed to retain and grow share in this dynamic market. This race is a marathon, but you pretty much have to sprint every lap."

Overall, the high-end, advanced phones represented about 10% of the global mobile-phone market by units in 2007, Canalys said. With an annual growth of 60% over 2006, the devices were one of the fastest growing segments in the technology industry.

Worldwide in the fourth quarter, Apple was third with a 6.5% share, behind leader Nokia, 52.9%; and RIM, 11.4%. Apple shipped 2.3 million iPhones in the quarter, and Nokia and RIM shipped 18.8 million and 4.1 million, respectively.