updated 1/25/2007 5:53:59 PM ET 2007-01-25T22:53:59

Cell phone makers shipped more than 1 billion handsets for the first time in 2006, driven by a strong holiday season in which shipments rose nearly 20 percent to a record 295 million devices, the technology research firm IDC reported Thursday.

The two biggest suppliers posted strong gains to boost their market shares in the quarter, with No.2 Motorola Inc. tightening the gap slightly with industry leader Nokia Corp. However, profit margins declined for both companies.

The fourth-quarter activity drove the year's total shipments to 1.02 billion phones, up 22.5 percent from the 2005 tally of 833 million units.

Emerging markets became a bigger factor in the industry's growth in 2006, accounting for more than half of all shipments.

"IDC expects this trend to continue as mature markets reach saturation and emerging markets, with much lower teledensity, provide ample opportunity for handset vendors to attract first-time users," IDC industry analyst Ramon Llamas said in a statement. In addition, he said, "Mobile phones are seen as both a practical necessity and a status symbol in many emerging markets."

Among leading vendors, Nokia shipped 105.5 million handsets in the fourth quarter, up 26 percent from year-earlier levels, to expand its share of the market to 35.8 percent. But with cheaper entry-level phones making up a large chunk of those shipments, the Finnish company saw profit margins decline from year-earlier levels.

Motorola shipped 65.7 million devices, a gain of 47 percent from the fourth quarter of 2005, increasing its market share to 22.3 percent vs. a year-ago level of 18.1 percent.

No. 3 Samsung Electronics Co.'s fourth-quarter shipments grew 17.6 percent to 32 million phones, its market share holding almost unchanged at nearly 11 percent.

Rounding out the top five, Sony Ericsson vaulted past LG Electronics Co. into the No. 4 slot. Shipments soared 61.5 percent to 16.1 million handsets at Sony Ericsson, a joint venture between Japan's Sony Corp. and Sweden's Ericsson AB, expanding its market share to 8.8 percent compared with 6.5 percent a year earlier. LG's phone shipments rose about 5 percent to 17 million phones, but its market share slipped to 5.8 percent, down from the year-earlier level of 6.6 percent.

For all of 2006, Nokia's shipments rose 31 percent to 348 million phones for a 34.1 percent share of the market, up from its 2005 market share of 31.8 percent. Motorola's annual shipments rose 49 percent to 217 million handsets, its market share expanding to 21.3 percent compared with 2005's level of 17.5 percent.

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