Mobile phone sales worldwide fell last year for the first time since 2009, says Gartner, dropping 1.7 percent to 1.75 billion units.
However, the fourth quarter of 2012 saw record smartphone sales of 207.7 million units, up 38.3 percent from the same period last year.
"The last time the worldwide mobile phone market declined was in 2009," says Anshul Gupta, principal research analyst at Gartner. "Tough economic conditions, shifting consumer preferences and intense market competition weakened the worldwide mobile phone market this year."
Demand for feature phones remained weak in 2012, says the report. Sales totaled 264.4 million units in the fourth quarter of 2012, down 19.3 percent year-on-year, and are expected to continue to fall.
The big winners are Apple and Samsung, which in the fourth quarter of 2012 raised their joint worldwide smartphone market share to 52 percent, up from 46.4 percent in the third quarter of 2012. Samsung ended the year in pole position, in both worldwide smartphone sales and overall mobile phone sales.
"There is no manufacturer that can firmly lay claim to the number three spot in global smartphone sales," says Gupta.
"The success of Apple and Samsung is based on the strength of their brands as much as their actual products. Their direct competitors, including those with comparable products, struggle to achieve the same brand appreciation among consumers, who, in a tough economic environment, go for cheaper products over brand."
Huawei had a good fourth quarter, boosting it to the number three position among smartphone vendors for the first time.
But competition's likely to heat up next year, says Gartner, as players such as Sony and Nokia up their game.
"With Samsung commanding over 42.5 percent of the Android market globally, and the next vendor at just 6 percent share, the Android brand is being overshadowed by Samsung's brand with the Galaxy name nearly a synonym for Android phones in consumers' mind share," says Gupta.
Meanwhile, Android has captured more than 50 percent of the OS market, widening the gap with Apple’s iOS.
"2013 will be the year of the rise of the third ecosystem as the battle between the new BlackBerry10 and Windows Phone intensifies," says Gupta.
"As carriers and vendors feel the pressure of the strong Android’s growth, alternative operating systems such as Tizen, Firefox, Ubuntu and Jolla will try and carve out an opportunity by positioning themselves as profitable alternatives."