Sophisticated smartphone global shipments will grow from less than 1 percent of total mobile handsets in 2002 to 5 percent in 2007 — representing a surge of 3.5 million units to 45 million. While still a small portion of the total mobile device market, ARC Group expects the value to run as high as 20 percent of the industry, due to the higher costs associated with extra features and functionality.

"Sales of these connected handheld devices remain low to date for many reasons, including their relatively high cost, which makes it difficult for operators and service providers to balance device subsidies against the potential for increased data revenue streams," said Malik Saadi of ARC Group.

While smartphones function similarly to handheld computers, they aren't likely to achieve wide adoption until the technology is on par with traditional handsets and PDAs. Comparatively, smartphones are larger and heavier, with shorter battery life, than the devices consumers are currently using.

Internally, 60 percent of smartphones are running Symbian OS, but ARC Group expects this share to fall to 39 percent by 2007. Palm OS accounts for 22 percent of the market, falling to under 5.5 percent in 2007 as Microsoft OS gains momentum and rises from its current 6.6 percent share.

ARC Group predicts Microsoft to rapidly catch up with Symbian by 2007 with a share of 40 percent, dependant on strategic alliances and partnerships, like the one the company forged with Orange, one of the largest providers of mobile services in the UK and France, in October 2002. However, according to internetnews.com, only 40,000 of the co-branded devices were sold as of March 2003.