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iPhone 5 To Help Spur Q4 Smartphones To Record High

NEW YORK – Smartphone competition and unit sell-through will hit all-time highs in the fourth quarter with the launch of the LTE-equipped iPhone 5 and other marquis devices that bring new features and performance levels to consumers, analysts contend.

Apple will also increase its year-over-year share in the quarter, although not as much as in previous holiday selling seasons, in part because there is no clear No. 3 smartphone OS from which to steal market share, analysts said. They also cited stepped-up product and advertising aggressiveness by Samsung, the growth of the prepaid market where Apple has less presence than Android, and no repeat of the late-2011 bump arising from the addition of Sprint to Apple’s carrier mix for the first time.

The addition of the iPhone 4 as a free phone on the Sprint and Verizon networks will also spur competition and encourage additional feature-phone users to trade up, some analysts said. “This is the first time that the CDMA carriers, particularly Verizon Wireless and Sprint Nextel, have had a free iPhone in the mix,” said Jim Patterson, CEO of Patterson Advisory Group, a telecom consulting and advisory services company.

“The real victims of a free iPhone, especially at Verizon Wireless and Sprint Nextel, are the Android handset manufacturers,” he added.

In the fourth quarter, analyst Jeff Kagan forecasts an acceleration in the smartphone-sellthrough growth rate on a year-over-year basis, not necessarily because more smartphones are being introduced this time around but because the latest smartphones do a lot more than their predecessors. “New features attract new purchases,” he said.

“Customers used to hang on to their wireless phones for years. Eventually they would break and have to be replaced,” he explained. “Today, however, the next and newest and hottest devices are always coming out, and that leaves most customers continually wanting more.”

Marquis devices encouraging smartphone upgrades include the Samsung Galaxy S III, Galaxy Note II smartphone/ tablet hybrid, LG’s smartphone/tablet Intuition, and the first Windows Phone 8 smartphones, available from HTC and expected to be available from Nokia.

Because of such competition, Apple’s fourth-quarter year-over-year growth rate won’t be as strong as it was in the year-ago quarter, he said. “Competition is getting stronger, not weaker.”

Overall, the October to December period for smartphone sales “should be a very busy and profitable and successful fourth quarter for customers, companies and their investors,” Kagan concluded.

For his part, Ross Rubin, principal analyst at Reticle Research, expects holiday smartphone sales will be higher than last year and that Apple’s share should grow, “although not as dramatically as it did last year when Sprint was added to the carrier mix for the first time,” he said. The addition of an LTE-equipped iPhone on the Verizon network “is a big boost for the iPhone there, which should help move the needle [for Apple share],” he added. “Free iPhones on Verizon and Sprint should also help, although these do not do as well as Apple’s flagship.”

Canaccord Genuity technology analyst Michael Walkley expects the iPhone to “regain leading smartphone share in the U.S. following the iPhone 5 launch.” Consumers held off on purchasing a new iPhone in the months preceding the iPhone 5 launch, and in August, the iPhone 4S, for the first time since its launch, lost the top-selling smartphone position in the U.S. to the Samsung Galaxy S III, he said.

Apple’s fourth-quarter share gains, however, could be held back by product shortages caused by shortages of components, some analysts added.