Will Handset Makers Lose Their Grip on a Recovering Market?

handsetThe worldwide handset market appears to be coming out of its funk, but that’s not entirely good news if you’re a phone maker. The top five worldwide manufacturers saw a combined 7 percent year-over-year decrease in handset volumes during the third quarter, according to a report from Deutsche Bank this morning, with 228 million handsets shipped. But the shrinkage was a vast improvement over the previous three quarters, each of which saw double-digit percentage declines from 2008 volumes. The figures indicate “a sign of renewed growth for next year,” Deutsche Bank analysts said, but that maturation could lead to brutal price wars and thinning margins for manufacturers.

Deutsche Bank’s numbers mirror last week’s reports from IDC and Strategy Analytics that indicate the market is finally turning around. Strategy Analytics reported a 4 percent year-over-year drop in worldwide phone sales during the third quarter, and predicted a 3 percent annual increase during the fourth quarter. Much of the expected growth will come as phone makers slash prices to blow out older inventory and make room for newer, more lucrative hardware. Nokia (s nok) cut prices across its portfolio a week ago, and Deutsche Bank reported a 1 percent drop in the average selling price of handsets worldwide. That trend is likely to ramp up as we enter the holiday season and new handsets such as the Motorola (s mot) Droid and BlackBerry Storm 2 come to market.

While razor-thin margins are nothing new for manufacturers of bargain-basement feature phones, signs of a price war are already evident in the smartphone market. Apple lowered the bar and boosted sales with its $99 iPhone, prompting Verizon Wireless to drop the price of most of its smartphones to $100. So while 2010 may be a year of recovery for the handset industry at large, it may not be a great year for some manufacturers.