EL SEGUNDO, CA – The impact of the recession and rising sales of smartphones will deal a setback to contract manufacturers in the global handset market, limiting the companies to less than a 30% share of the wireless handset market during the next four years, says IHS iSuppli.

Contract manufacturers accounted for 25.2% of global unit shipments of mobile phones in 2009, down from 27% in 2008, IHS said. Contract manufacturers are expected to ship only 28% of mobile phones by 2014, up fewer than three percentage points from 2009.

In 2009, some cellphone OEMs responded to the recession by bringing production back in-house. Among the companies that followed such a strategy were No. 1 cellphone OEM Nokia and No. 2 OEM Samsung Electronics, says IHS.

Meanwhile, OEMs making greater use of contract manufacturers, such as Motorola and Sony Ericsson, adjusted their product portfolios to reduce reliance on lower-cost, lower-margin phones, the majority of which then were outsourced to contract manufacturers, says the research firm.

Proprietary smartphone OEMs such as Apple and Research in Motion (RIM) currently use contract manufacturers exclusively on an EMS basis. Both RIM and Apple saw increased shipments and expanded market share in 2010, benefiting their contract manufacturers. But while EMS providers with exposure to the two OEMs enjoyed significant growth in both revenues and profitability during the last two years, there is no guarantee EMS providers will continue to reap such benefits in the future, IHS believes.

As for other contract manufacturers, such as Foxconn, Compal and Arima, unless they can further develop their smartphone capabilities to provide a one-shop solution to OEMs – especially those based on the open Android platform – it will be difficult for these entities to counter the stagnation of shipments and the erosion of margins, according to IHS.