Cheap smartphones killing mid-price phones

Nokia's iPhone-wannabe 5800 XpressMusic smartphone is doing great, analysts say. But Nokia as a whole is expected to report a steep drop in profits for the first quarter of 2009. While the company still dominates with a 40 percent market share, it is expected to see its lead erode while BlackBerry maker Research in Motion gains ground.

The reason: Buyers are shifting en masse away from Nokia's lower-priced models and seeking slightly pricier low-end smartphones that are more iPhone-like with Internet capability, more processing power, better screens, and full QWERTY keyboards.

The 5800 is Nokia's star for now. It sells for less than an iPhone in Eastern Europe, the Middle East and Asia, where it outsells Apple's superphone. Nokia may even match Apple's worldwide first-quarter shipments with more than 2.5 million 5800s sold, according to some forecasts.

Smartphone success comes at the expense of middle-ground of "feature phones," industry jargon for the sort of camera-phones and music-player-phones made by Sony Ericsson.

Meanwhile, buyers are opting for lower-end BlackBerry models. That's why industry watchers expect Research in Motion will see a 10 to 20 percent rise in sales this quarter, despite a 10 percent slump in the overall market. Even in a recession, people seem unable to resist buying themselves a cool phone.