Seemingly conflicting reports on smartphone growth in the third quarter signal rough times ahead for the market.

Research firm Canalys said growth numbers for smartphones were the best on record in the third quarter 2008, while Gartner said they were the worst since it began tracking smartphones.

Interestingly both research firms could be right, which brings us to the bad news.

According to Canalys, 39.9 million smartphones were shipped in the third quarter – an all-time high for a single quarter. The total represented a 28 percent increase from the 31.1 million units shipped in the same quarter a year ago. (Smartphone Sales Surge)

Gartner said sales in the quarter totaled 36.5 million units, an 11.5 percent increase from the same quarter in 2007. But the increase represents a troubling trend – a significant sales slowdown.

First quarter sales increased 29.3 percent in 2008 while second quarter sales grew 15.7 percent both compared to the corresponding quarters in 2007.

The discrepancy between the two firms is a result of what they measured. Canalys measured shipments from the vendors to carriers and other distributors, while Gartner measured sales to end users.

So phone makers shipped units at the highest rate ever, while the rate at which end users bought phones slowed to a comparative crawl.

That’s bad news because the numbers mean that carriers are holding on to stockpiles of unsold phones.

Because of the slowdown in consumer spending, carriers and retailers will try to keep inventories in check by cutting purchases from phone makers in the fourth quarter and perhaps through the first half of 2009.

Nokia has already sounded those warning bells lowering its fourth quarter and 2009 forecasts twice in three weeks. (Nokia Lowers Market Forecast Again)

But Nokia may be part of the problem.

“The sales growth rate has now touched the very bottom at 11.5 percent,” said Roberta Cozza, principal analyst at Gartner. “The economy has had an impact but you also have a vendor like Nokia which is commanding 42 percent of the market not being as competitive as it should be.”

The Nos. 2 and 3 vendors, Research in Motion and Apple, are setting the pace in the smartphone market with attractive and innovative devices that take advantage of touch screen technology.

Nokia, with its wide geographical reach, has not kept up with some of the more compelling user-interface innovations and that has suppressed the market to some extent, Ms. Cozza said.

Apple, which is gaining ground, is delivering a superior user experience, she said, while RIM is delivering a solid business and communications experience.

Nokia has been doing better lately but for most of the year the Finnish market leader has been missing in action, she said, in terms of a truly innovative user interface.

Gartner expects the smartphone market to slow down even more, despite higher carrier subsidies.

“Data plan rates are still too high for the average user, and two-year contracts are still an obstacle,” Ms. Cozza said.