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With public venues overrun by people broadcasting their dinner plans and other miscellany into cellphones, one might think the mobile-communication market was near the saturation point. But for investors, the party is just getting started – if they have their eggs in the right basket.

The communications growth baton now is being passed to smartphones. They are mobile phones with software operating systems that let users take pictures, send e-mail, browse the Internet, play movies or music or games and do a variety of other functions that normally would be done on personal computers.

Global sales of smartphones climbed to 40 million units in the second quarter of 2009, according to Gartner Research. That is a 27-per-cent increase over the second quarter of 2008, a respectable growth rate considering it occurred during one of the worse economic downturns in decades. By comparison, the overall mobile-phone category (which includes cellphones and smartphones) declined 6.1 per cent to 286 million units over the same period.

In Canada, the smartphone segment expanded at an even more impressive rate of 49 per cent in the second quarter, IDC Canada reports. This strong showing helped stabilize shipments of all mobile phones in Canada: they were down only 1 per cent in the second quarter, to 2.36 million handsets.

Smartphones have been around for several years. What's helping maintain demand in 2009 is new product releases with enhanced functionality, such as cameras with more megapixels and slide-out “qwerty” keyboards. Independent software developers also continue to add new applications in areas such as games, maps and puzzles.

Because the technology behind the handsets and networks continues to improve and yield greater value to consumers, analysts see considerable growth potential. For example, in a report for U.S. investment advisory newsletter Personal Finance, Elliott Gue and Roger Conrad write that wireless firms in the United States will see their revenues jump from $10-billion (U.S.) to $100-billion (U.S.) over the next eight years.

Worldwide, smartphones currently claim less than 15 per cent of the mobile handset market. If “every cellphone is going to be a smartphone,” as IDC Canada wireless analyst Kevin Restivo believes, there would appear to be plenty of room for growth.

Moreover, smartphones should displace not only much of the market for low-end cellphones but also a portion of the market for personal computers. In fact, there seems to be some signs already of smartphones replacing personal computers in Japan.

“The household PC market is losing momentum to other electronics like … mobile phones,” IDC Japan research director Masahiro Katayama told Associated Press in April. Millions in Japan bypass their computers and download music, photos, and movies to their handsets. Adds Mr. Katayama: “… in Japan, kids now grow up using mobile phones, not PCs. The future of PCs isn't bright.”

In a mid-August research report, RBC Dominion Securities analyst Mike Abramsky described the smartphone market as “huge, nascent and under-penetrated.” It “represents the next wave of computing.” It's going to be “as profound as the historic technology shift from mainframes to PCs.”

Mr. Abramsky estimates that global smartphone penetration will rise over the next three years to 35 per cent of the handset market. By 2011, smartphone sales will surpass shipments of personal computers, at 400 million a year.

Based on Gartner Research data, smartphone makers with the largest global market share are: Nokia Corp. (45 per cent), Research In Motion Ltd. (19 per cent) and Apple Inc. (13 per cent). Investing in one of them, or a combination, would seem to be a good way to gain exposure to the smartphone phenomenon – especially now that their valuations in the stock market have been somewhat dampened by the global recession.

One caveat concerning Nokia NOK-N is that it is also a major producer of traditional cellphones, which are at risk of becoming a declining product line. Yet, such low-end cellphones are still a fast-growing segment in emerging markets like China and India.

In the North American market, RIM RIM-T and Apple AAPL-Q are No. 1 and No. 2, respectively. Both are leading the way in bringing new models and functionality to market. Being out front in product innovation is one reason why “RIM and Apple are catching up to Nokia,” Mr. Restivo says.

RIM has a solid grip on the corporate market thanks to its BlackBerry product, and is enjoying a successful foray into the consumer segment with devices such as the Curve, Storm and Pearl. Apple's iPhone product is growing by leaps and bounds in the consumer segment, and is “running neck and neck with RIM in that part of the market,” adds Mr. Restivo.

RIM's offerings are said to be good at speedy transmission of secure e-mails. Apple's iPhone is said to have a better Internet browser and a larger number of applications. RIM recently acquired Torch Mobile for the purpose of developing a new browser that could match or exceed the iPhone's.

At this stage, however, it may be premature to worry about one product or company being better than the other. The market is taking off and there is room for many smartphone providers to enjoy strong rates of growth. As Mr. Restivo noted, there “is room for multiple players in the market – a rising tide lifts all ships.”

Handset makers are not the only firms that stand to profit. As for infrastructure components, Mr. Gue and Mr. Conrad of the Personal Finance newsletter single out Starent Networks Corp, a specialist in “mobile core” services (the part of the network that manages customers' requests for data and links them to the Internet).

One of the more exciting infrastructure areas is touch-panel interfaces, which first appeared on the iPhone and have spread to Palm Inc.'s Pre, RIM's Storm, and HTC Corp.'s Dream models. In a July report on touch-panel technology, UBS Investment Research identified several touch-panel makers in line to benefit from smartphones.

Of note is Synaptics Inc., which has a leading market share and is a touch-panel module maker for the BlackBerry Storm and HTC Dream offerings. Cypress Technology Co. Ltd. is “the major standalone [touch-panel]controller vendor in the market,” notes the UBS study.

Then there are the distributors and carriers. AT&T Corp. has an exclusive licence to distribute the iPhone in the United States. Verizon Communications Inc. is expected to have its long-term evolution (LTE) network ready by late 2010. LTE promises to give smartphone users a high-speed Internet experience similar to the one they can get at home.

In Canada, Rogers Communications Inc. has the only network able to carry the iPhone. But BCE Inc. and Telus Corp. plan to have a similar network ready in time for the Vancouver 2010 Winter Olympics (they also just started selling the Palm Pre smartphone, which has many features similar to the iPhone). However, LTE networks likely won't be operational in Canada until sometime between 2013 and 2015.