Even during the worldwide recession it seems consumers continue to abandon ‘dumb’ phones when, for just a little bit more money, they can get a pocket-sized computer – a smartphone – instead. According to research firm Gartner, overall handset sales are expected to shrink by 4 percent this year compared to last year. Meanwhile, smartphone sales are forecast to grow by more than 20 percent.

Smartphones account for only 14 percent of the mobile phone market today, but this segment has doubled its share of the global mobile phone business over the past three years. More than 500 million smartphones are expected to be sold in 2012 when they are forecasted to make up half the market. Revenues from smartphones are expected to double to half the industry total by 2014.

With the smartphone market being really the only game in town, the intensity of the battle for the smartphone market is turning white hot. Over the next few months an array of new models from a variety of phone makers, including some new entrants, is due to hit the market. This will have major implications for investors involved with the companies who manufacture smartphones.

The new entrants into the smartphone market aim to bridge the pricing gap between smartphones and standard feature phones and bring the more powerful product to the mass marketplace. According to Gartner, the proliferation of cheaper smartphones will further accelerate the growth rate of smartphones to 43 percent next year as smartphone sales rise to 250 million units from 175 million units this year.

It may be Apple and its juicy profit margins which will be under siege from Google and its Android operating system for smartphones. The Apple iPhone, which has been setting the bar in touch-screen smartphones, could soon be overtaken by an army of Google-powered handsets. Android-based phones – handsets that use the open source Google mobile operating system – are on the march as non-iPhone carriers look for a rival to Apple’s device. Since its introduction a year ago on one device with one carrier, Android has come a long way. Android is now currently used on 12 different handsets with 32 carriers in 26 countries.

Research group Gartner sees Android eating into Nokia’s leading market share and being featured on 18 percent of smart phones by 2012, up from 1.6 percent in the first quarter of 2009. That figure would put Android ahead of both Research in Motion and Apple operating systems, which are featured on 13.9 percent and 13.6 percent of handsets respectively.

According to Gartner analyst Ken Dulaney, Google’s Android will inevitably beat Apple’s iPhone… if only because it will be featured on many more handset models. Investors should bear in mind that Apple has only one model – the iPhone – and does NOT license its operating system or technology. Many Android handset makers are improving on the iPhone’s hardware, while a new version of the operating system and more than 10,000 applications developed for Android are providing them with very competitive software.

The companies involved in this battle for the smartphone market include: Google (NASDAQ: GOOG), Apple (NASDAQ: AAPL), Research in Motion (NASDAQ: RIMM), Nokia ADR (NYSE: NOK), Verizon (NYSE: VZ), AT&T (NYSE: T), Sprint Nextel (NYSE: S) and Deutsche Telekom ADR (NYSE: DT) – T-Mobile.