2011 will be the year Android explodes

    Ever-improving networks and a big hardware announcement that will send handset prices plummeting both point to smartphone growth in 2011 that could totally eclipse anything we've seen before.

    Smartphones have been growing at an unbelievable clip over the past year but they still account for only around a third of all phones in the US and an even smaller percentage internationally. In developing countries, the price of smartphones, aside from some 'quasi-smart' Nokias (NOK) are out of reach for all but the elite. India and China each have billion plus populations and growing middle classes, but neither country is even at a 10% market penetration of smartphones.

    Globally, market intelligence firm IDC counted 269.6 million smartphones sold this year, compared to the 173.5 million units shipped in 2009.

    In 2011, we might see half a billion phones sold worldwide. Smartphones will likely blow by traditional computers next year as the way most of the world gains access to the Internet.

    Two major factors will drive this, in tandem: Wireless infrastructure is getting better every day, and hardware is getting cheaper. Cheaper hardware will eliminate the need for subsidies and therefore will improve competition between carriers, and spur them to improve their networks. Google (GOOG) Android head Andy Rubin calls this a 'perfect storm' for smartphone adoption.

    A closer look at price: In 2010, the cheapest mainstream Smartphone was just below $200 (unsubsidized by a carrier contract-- the way most of the world buys its phones). Some extremely cheap (but feature rich) Chinese brands have recently fallen to around $150. But based on the hardware announcements we're seeing, including one big player in particular that price will be cut in half:

    Broadcom (BRCM) last week announced its BCM2157 - Mass-Market 3G HSDPA "Android" Baseband chipset. The platform provides everything a modern smartphone builder needs: a dual core ARM processor, Bluetooth, GPS, support for up to a 5-megapixel camera, support for capacitive HVGA (320x480 like iPhone 3GS) or or WQVGA (~240x400) displays. That's pretty much your current baseline Android smartphone, like the Samsung Intercept.

    The chipset will work on AT&T (T) and T-Mobile's 3G networks in the US and on global GSM providers.

    It is interesting to note that Broadcom is marketing this hardware specifically at Android OEMs, though theoretically any smartphone OS could be built on top of it. Android is clearly the platform for growth on the low end.

    I had a chance to speak with Jim Tran, VP/GM – Handset Line of Business for Broadcom, who was able to elaborate on the details of the new processor and what it meant for the industry. Here are some of Broadcom's bullet points:

    • The BCM2157 baseband, since it combines many functions on one chip, is able to run more efficiently, meaning less battery power will be needed than on current basic handsets

    • Low-cost, low-power, 65 nm digital CMOS process means the silicon will be cheap

    • The dual-core processors will run at 500-800mhz.

    • Supports portable Wifi hotspot and Android 2.2 and up

    But the kicker is the price. Tran says that phones made from the BCM2157 chipset will retail for under $100 and may dip as low as $75. Those devices should debut in just 3-6 months (and we might hear about them next month at CES).

    By this time next year, Broadcom says it will release a follow-up chip that will allow WVGA displays and as much power as today's high-end Smartphones at the same $75-$100 prices. That Nexus S that costs $530 now off contract will cost just a fraction of that in just one year.

    Broadcom isn't the only chipmaker taking aim at this new market. There is another chipmaker out of China building the same type of chipset for 3G EVDO Rev. A, the type of network that Sprint and Verizon use. They also say that they can get retail prices below $100.

    To be clear, That sub $100 price is not the cost of materials, it is the suggested retail price after the manufacturers (and carriers) have taken their profits.

    Those prices will have many feature phone users saddling up with smartphones. And they may open the emerging Asian markets, like India and China, to smartphone customers on a large scale, for the first time ever. That means many more smartphone users and many more Google and Android users, too.

    How cheap smartphones change the American cell phone market

    Perhaps more importantly, at $100, many first-world shoppers will forgo the subsidized two year contracts and instead choose month to month plans. That price point takes the power away from the carriers. If T-Mobile is having a special and I can just take my AT&T phone over without being hit with early termination fees, the carriers are much more likely to compete for customers.

    That, in turn will likely push data prices down. We are already starting to see this happen. Virgin offers a $25/month unlimited data plan off contract. T-Mobile offers a limited $10 date plan off contract. AT&T has tiers that start very low.

    Consumers used to feature phone monthly costs of $30/month may even opt to forgo wireless data altogether, instead choosing to use the smartphone's built in Wifi radio to surf near-ubiquitous Wifi in homes, at work and about town. To entice low end smartphone users away from just using Wifi, carriers will have to make affordable data plans.

    Cheap smartphones could change the way carriers price contracts here in the U.S.

    Whatever the case, if you thought Android going from 30,000 activations a day to 300,000 activations/day was impressive, 2011 might be an even bigger growth year for Android.

    Growth targets are just starting to trickle out, but HTC, who make high end Android devices and a few Windows Phone 7 devices expect to triple their 2010 output in 2011. Yet if things play out the way Rubin, Google, Broadcom and HTC hope, even that may wind up being a conservative estimate for Android growth. What's most interesting is that unless Apple (AAPL) has a plan to keep up, their iPhone, once one of the only usable smartphone games in town, may wind up back where most Apple products are slotted-- at the top of the market, affordable only to those willing and able to pay a premium for Steve Jobs' aesthetic sensibilities.